Hedge fund industry assets increased during the first quarter to $3.18 trillion as of March 31, driven primarily by strong investment performance overcoming continued net outflows, data released Wednesday by Hedge Fund Research shows.
The increase from $3.11 trillion three months earlier overcame redemptions totaling $10.7 billion, which partially offset equity hedge capital's gain of $45.4 billion to $917.2 billion in assets. The HFRI Equity Hedge (Total) index returned 7.8% in the quarter ended March 31. Health care led all industries, with the HFRI Equity Hedge: Healthcare index gaining 13.4%.
The current asset level is the fifth highest recorded and represents a drop of 1.9% from the record high of $3.24 trillion as of Sept. 30, which had been the ninth straight quarter of record high asset levels.
The HFRI Fund Weighted Composite index was up 5.88% in the three months ended March 31, while the HFRI Asset Weighted Composite index was up 3.12%.
Event-drive strategy assets also saw significant gains during the first quarter, with assets increasing $17.5 billion to finish at $832.6 billion in assets under management as of March 31.
Relative-value hedge funds, meanwhile, was the only primary strategy that received net inflows during the first quarter, with investors allocating a net $1.3 billion, part of a $15.2 billion increase in assets to bring total AUM to $850 billion as of March 31.
"Hedge fund capital posted sharp gains to begin 2019 as investor risk tolerance increased and the HFRI posted the best first quarter since 2006, largely reversing the asset decline from the prior quarter," said Kenneth J. Heinz, president of HFR, in a news release. "The process of investor repositioning and rebalancing between funds and strategies is an ongoing one, likely extended by the dramatic and sharp reversal in performance and investor risk tolerance observed in the prior two quarters."
Larger hedge funds in the industry continued to see more outflows than smaller firms during the first quarter, the news release said, but the severity of those outflows was slightly abated, as firms with more than $5 billion in AUM saw outflows of $5 billion, compared with $15.2 billion in the fourth quarter of 2018. Firms with between $1 billion and $5 billion in AUM saw outflows of $10.3 billion, and those with less than $1 billion had a total of $2.5 billion.
"It is likely that the hedge fund capital and flow cycle lags realized performance by several quarters as investors evaluate new allocations in light of recent performance," Mr. Heinz said. "We expect this process to contribute to continued asset growth and new investor allocations throughout 2019."