In its 2011 Q1 Hedge Fund Industry Review, released Tuesday, the Dow Jones Credit Suisse Hedge Fund Index team revealed that large hedge funds, with more than $500 million AUM, brought in more than $12 billion of inflows; on the other hand, smaller funds experienced net outflows for Q1. Large funds also outperformed smaller funds during the quarter, returning 2.2% compared with 2.0%.

The report, which examines the drivers of hedge fund performance and asset growth in the first quarter of 2011, also found that:

  • Hedge funds, as measured by the Dow Jones Credit Suisse Hedge Fund Index, saw gains of 2.2% in the first quarter, and posted positive performance in each month of the quarter
  • The industry saw an estimated $10.1 billion in inflows in the first quarter. If this pace is maintained for the rest of 2011, the industry is on track to double the asset inflows received in 2010
  • Global macro experienced the largest inflows in the first quarter, gaining $3.3 billion followed by fixed income arbitrage (+$2.9 billion) and managed futures (+$2.8 billion)
  • Including performance gains, current hedge fund industry assets under management (AUM) grew to $1.8 trillion as of March 31, 2011, up from $1.7 trillion on December 31, 2010.

Convertible arbitrage performed the best in Q1, up 4.5%, as large institutional investors increasing their exposure contributed to increased valuation. Equity market neutral funds gained 3.5%, and event-driven managers were up 3%.

Fixed income arbitrage, as mentioned above, did well, but the Bank of Japan snapped their ten-month performance rally in March with the injection of major liquidity into the market. This drove yield lower and also had a negative impact on managers with substantial Japanese market exposure.