Hedge fund capital surpasses $4 trillion

According to data, hedge funds have surpassed the $4 trillion mark at the start of Q4 2023, driven by macroeconomic and geopolitical uncertainties. 

According to hedge fund research firm HFR’s Global Hedge Fund Industry Report, total hedge fund assets continued their upward trajectory, marking the fourth consecutive quarterly increase in the third quarter of 2023, with inflows worth $53 billion injection, bringing total global hedge fund capital to an estimated $4.0 trillion.

Investors allocated an estimated $2.3 billion in new capital to the hedge fund industry in 3Q23, the third consecutive quarter of net asset inflows, with inflows led by event-driven strategies.

According to the report, investors have been allocating fresh capital to event-driven and relative value arbitrage strategies while trimming allocations to equity hedge strategies.

Event-driven strategies, focusing on out-of-favour assets, saw an increase of nearly $25 billion in the third quarter, raising total capital to $1.096 trillion. Credit and interest rate-sensitive relative value arbitrage strategies increased by approximately $17.5 billion in the third quarter, reaching $1.08 trillion.

The equity market’s increasing volatility impacted the capital managed by Equity Hedge (EH) strategies, resulting in a $5.1 billion decrease in total EH capital to $1.13 trillion.

The third quarter also saw a concentration of investments in mid-sized and large firms. Those managing between $1 and $5 billion received an estimated $2.9 billion in net inflows, while firms managing over $5 billion experienced a net asset inflow of $2.2 billion. Smaller firms managing less than $1 billion faced estimated outflows of $2.8 billion.

Kenneth J. Heinz, president, HFR, commented: “Hedge funds have again navigated a powerful shift and negative reversal in risk tolerance and sentiment as a positive correlation between equities and bonds rose sharply throughout 3Q, presenting risks to classic, traditional long-biased strategies as well as opportunities for funds tactically positioned for these trends.”

© 2023 funds europe

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