CHICAGO (October 19, 2011) – Hedge funds posted the fourth worst quarterly performance in industry history in 3Q11, as a combination of uncertainty regarding the European sovereign debt crisis and weakening economic data contributed to volatility across equity, credit, commodities and currencies. These performance declines reduced total hedge fund industry capital by $85 billion, according to today’s release of the HFR Global Hedge Fund Industry Report: 3Q11.
The asset decline ends two consecutive quarters in which total capital under management eclipsed new record levels, and brings total hedge fund industry AUM to $1.97 trillion. The HFRI Fund Weighted Composite Index declined by -6.2 percent for the quarter, wiping out a small 1H11 gain and bringing year to date (YTD) performance for the broad based composite to a decline -5.4 percent.
Despite performance based declines, investors continued to allocate new capital to the hedge fund industry, with 3Q net inflows totaling $8.7 billion. This marks the ninth consecutive quarter in which the industry has experienced net inflows from investors and brings the YTD inflow total to $70.1 billion.
Investors exhibited preferences for certain strategies, allocating $8.5 billion of new capital to Relative Value Arbitrage funds, bringing YTD inflows in Relative Value to over $30 billion. Macro funds experienced a net outflow of $3 billion, despite posting a narrow performance gain of +0.6 percent in 3Q. However, Macro has been in favor with investors throughout 2011, with nearly $20 billion of inflows YTD.
In contrast, Equity Hedge funds, which comprise nearly thirty percent of all industry capital, experienced $2.7 billion in net inflows for the quarter, despite posting a performance decline of -10.4 percent.
Credit-sensitive Event Driven (ED) funds, which declined by -7.3 percent in the quarter, experienced a net inflow of less than $500 million; ED funds have received less than $10 billion in new capital in the first three quarters of 2011, the lowest by strategy area. In total, 61 percent of all hedge funds experienced outflows for the quarter, while 39 percent experienced inflows. Of these, approximately 20 funds experienced inflows of greater than $500 million in 3Q, while nearly 25 funds experienced outflows of greater than $500 million.
“The third quarter presented an extremely challenging performance environment, with asset volatility in many respects on par with financial crises in 2008 and 1998,” said Kenneth J. Heinz, President of HFR. “However, as investor risk aversion increased across all asset classes, hedge fund investors have maintained a critical but forward-looking disposition, reinforcing their commitments to preferred strategy areas and core funds, and positioning their allocations to benefit from opportunities created by current dislocations and volatility.”
About HFR HFR (Hedge Fund Research, Inc.) is the global leader in the alternative investment industry. Established in 1992, HFR specializes in the areas of indexation and analysis of hedge funds. HFR Database, the most comprehensive resource available for hedge fund investors, includes fund-level detail on historical performance and assets, as well as firm characteristics on both the broadest and most influential hedge fund managers.
HFR has developed the industry’s most detailed fund classification system, enabling granular and specific queries for relative performance measurement, peer group analysis and benchmarking. HFR produces over 100 indices of hedge fund performance ranging from industry-aggregate levels down to specific, niche areas of sub-strategy and regional investment focus.
With performance dating back to 1990, the HFRI Fund Weighted Composite Index is the industry’s most widely used standard benchmark of hedge fund performance globally. The HFR suite of Analysis Products leverages the HFR Database to provide detailed, current, comprehensive and relevant aggregate reference points on all facets of the hedge fund industry. HFR also offers consulting services for clients seeking customized top-level or more nuanced analysis. For the hedge fund industry’s leading investors and hedge fund managers, Hedge Fund Research is The Institutional Standard.
