Investor inflows in the first quarter helped boost total hedge fund industry capital to $3.1 trillion, according to the latest HFR Global Hedge Fund Industry Report, released Thursday.
Investors raised their allocations to event-driven and quantitative, trend-following systematic macro strategies, HFR said.
The quarterly increase of 1.6%, $47.2 billion, set a third consecutive quarterly record. In the trailing 12 months, total hedge fund capital has increased by 7.3%.
Hedge funds reported positive performance in all three months of the first quarter, extending a year-long stretch of positive returns.
“Sophisticated investors continue to strategically position for market trends that drive hedge fund performance, including oscillating patterns of optimism and reversals of the Trump, Yellen, Brexit and Euro trades, with each of these impacted by the increased possibility of geopolitical tensions and conflict,” HFR president Kenneth Heinz said in a statement.
“Funds that continue to demonstrate their ability to navigate these trends and generate strong performance will lead industry growth in 2017.”
HFR reported that investor outflows in the January-to-March period slowed to $5.4 billion, the lowest level since $1.5 billion was redeemed in the final quarter of 2015. This came on the heels of a $70.1 billion outflow for fiscal 2016, the biggest calendar year outflow since 2009.
Investors allocated some $3.5 billion to event-driven strategies in the first quarter, bringing total capital invested in these to $793.5 billion. The inflows were concentrated in diversified multi-strategy and distressed substrategies, which received $5.2 billion and $1.6 billion, respectively.
HFR said this was the first quarterly inflow into event-driven funds since the 2015 third quarter, and represented a trend reversal from 2016, when investors withdrew $38.1 billion.
Investors allocated $730 million of net capital to macro funds in the first quarter, bringing total capital invested to $579.2 billion. Systematic strategies led macro substrategy net inflows with $4.9 billion of new capital.
Commodity trading advisors experienced the fourth consecutive quarter of net inflows, totaling more than $15 billion of new capital in the last year.
These inflows to CTAs were offset by outflows of $3.8 billion from discretionary macro strategies, their fifth consecutive quarter of outflows.
Thanks to strong performance in the first quarter, equity hedge strategies, the largest area of hedge fund strategy capital, had the biggest asset increase of the four main hedge fund strategies, an increase of $21.6 billion that drove assets to $870.7 billion.
However, this capital growth was partially offset by investor outflows of $4.3 billion, concentrated in fundamental growth and fundamental value substrategies.
Performance gains also drove a capital increase of $5.4 billion in relative value arbitrage strategies, the industry’s second largest area of strategy capital, pushing total assets to $822.2 billion.
At the same time, investors redeemed $5.4 billion from relative value arb strategies, mainly from multi-strategy funds, which experienced net outflows of $3.6 billion.
HFR reported that quarterly net outflows were concentrated in the industry’s biggest firms.
Those managing more than $5 billion had outflows of $5.9 billion. Firms managing between $1 billion and $5 billion saw net outflows of $500 million, while firms managing less than $1 billion received net inflows of $900 million.
— Check out Liquid Alts Investors Return to Relative Value Space: Wilshire on ThinkAdvisor.