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Hedge Fund Industry Assets Under Management Surges To Record Level

Hedge fund industry assets under management surged to conclude a volatile 2020 as strong performance gains drove hedge fund assets to significant new milestones. Total hedge fund capital jumped to $3.6trn as of year-end 2020, a quarterly increase of $290bn, representing the largest asset growth in industry history, as reported today by HFR.

Equity Hedge led strategy-level asset increases in Q4, as total EH capital vaulted an estimated $121bn from the prior quarter to reach $1.10trn, the first of the four major hedge fund strategy categories to surpass the $1rn milestone. Investors allocated an estimated $1.7bn of net new capital to EH in 4Q.

Total capital invested in Event-Driven (ED) strategies also increased in the fourth quarter, with investors allocating an estimated $2.94bn of new capital, as strategy assets surged by $106.5bn to end the year at $961bn, surpassing Relative Value Arbitrage (RVA) as the industry’s second largest area of strategy capital. ED sub-strategy inflows were led by Special Situations, which received an estimated $4.2bn of net new capital in the quarter, bringing sub-strategy assets to $436bn.

Uncorrelated Macro strategies also experienced small asset inflows in Q4, as investors continued to position for macroeconomic uncertainty and powerful trends across global financial markets. Investors allocated an estimated $185mn of net new capital to Macro strategies for the quarter to help total Macro assets climb to $604bn as of year-end, an increase of $24.8bn from the prior quarter. 

Fixed income-based Relative Value Arbitrage (RVA) strategies experienced a narrow outflow of capital in Q4, though total strategy assets increased as a result of strong performance. Investors redeemed an estimated $1.8bn from RVA in the quarter, though strategy assets increased by $38.1bn, driven by performance-based gains, to bring year-end RVA capital to $941bn. RVA Multi-Strategy funds led sub-strategy asset increases, as capital rose by $18.8 billion from the prior quarter to finish the year at $550.7bn.

Investor inflows were led by the industry’s largest firms, with firms managing greater than $5bn receiving an estimated $4.8bn of net new capital in the quarter. Mid-sized firms managing between $1bn and $5bn experienced a small net outflow of $436mn, while firms managing less than $1bn experienced outflows of $1.3bn.

“Investors allocated new capital to hedge funds in q4as a result of both defensive outperformance through the coronavirus-driven volatility in early 2020, as well as opportunistic gains through the uneven financial market recovery in the second and third quarters,” stated Kenneth J. Heinz, President of HFR. “Institutions globally are making forward-looking allocations to hedge funds, anticipating and positioning for the near-term uncertainty of the virus containment, as well as intermediate-term macroeconomic uncertainties of the US, European and Asian economies into 2021. Hedge fund strategies which have demonstrated powerful, opportunistic and uncorrelated performance throughout 2020 are likely to lead continued industry growth into 2021.”

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