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Performance Drives Hedge Fund Asset Growth But Redemptions Still Occurring

Hedge funds posted their strongest quarterly performance since the second quarter of 2009 to push total AUM $220bn higher to end the quarter at $3.177trn. Investors still redeemed from their hedge fund investments, however, with a net $12.2bn exiting the industry. Added to Q1 2020's withdrawals of $33.3bn, investors have now redeemed approximately $45bn so far this year.

“The global hedge fund industry experienced a record asset surge in 2Q as performance rebounded from the 1Q coronavirus pandemic-driven market bottom, led by Technology, Activist and Corporate Fixed Income sub-strategies, while outflows declined by nearly two-thirds from 1Q,” stated Kenneth J, Heinz, President of HFR. “Extreme volatility in 1H20, including both the 1Q spike and 2Q reversal, represents a sharp and dramatic contrast to the beta-driven, risk-on sentiment which dominated 2019, creating an opportunity-rich environment for long-short hedge fund performance generation. While capital levels increased sharply in 2Q, it is likely that asset gains continue into 2H20 alongside inflows from institutional investors that position for continued virus uncertainty, including humanitarian, economic and geopolitical implications, as well as social unrest and the upcoming US elections, with these thematic drivers contributing to a strong performance environment through year-end.”

Equity strategies were, unsurprisingly, the drivers of performance gains for the hedge fund industry in Q2, with the HFRI Equity Hedge (Total) Index surging +13.3%.

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