Long/short equity hedge fund strategies lost industry dominance for the first time in 2012.
Assets invested in fixed-income hedge funds exceeded those invested in equity strategies as of Nov. 30 for the first time thanks to a four-year growth spurt fueled by institutional investors.
Fixed-income/credit hedge funds managed an aggregate $796.9 billion as of Nov. 30 compared with $788.9 billion invested in equity strategies, according to data from eVestment Alliance LLC's hedge fund database.
Long/short equity hedge fund assets accounted for 56.32% of total industry assets of $490.6 billion at the end of 2000, according to data prepared for Pensions & Investments by Hedge Fund Research Inc.
Nearly 12 years later, it's clear the breakdown of hedge fund industry assets has essentially equalized.
As of Sept. 30, for industry assets of $2.192 trillion, assets invested in equity hedge and relative-value funds (the best proxy for fixed-income and credit strategies) were equal at 26.7% each, followed by event-driven and macro strategies at 24.5% and 22.1%, respectively, according to HFR data.
Sources said the beneficiaries of the rotation of institutional money into credit/fixed-income hedge funds since the credit crisis of 2008-2009 include BlueMountain Capital Management LLC, Pine River Capital Management LP, Marathon Asset Management, MKP Capital Management LLC and Brigade Capital Management LLC. These firms all have seen significant, multibillion-dollar inflows from pension funds, especially public pension funds, since the end of 2008.
Sources said the most recent market crash forced many institutional investors to reconsider hedge fund portfolio construction and to reduce the weighting to equity strategies just as enormous opportunities were arising in credit markets, an area prime for hedge fund plunder.
“Many pension funds don't want to go through another 2008 and have been very actively diversifying their portfolios over the past four years, seeking volatility reduction as much or more than returns,” said hedge fund consultant and third-party marketer Donald A. Steinbrugge, managing member at Agecroft Partners LLC, Richmond, Va.
That diversification came at the expense of long/short equity strategies, Mr. Steinbrugge said.