Hedge fund industry assets rose slightly to $4.00 trillion in the third quarter of 2023 compared to $3.95 trillion in the previous quarter, according to the third-quarter hedge fund report issued Oct. 23 by hedge fund tracker HFR.
Hedge fund assets under management in the third quarter of 2023 came very close to the highest hedge fund figure in HFR's tracking history — $4.01 trillion — in 2021.
The report said the increase in total hedge fund assets in the third quarter was driven by macroeconomic uncertainty, including sharply increased interest rates, continued inflationary pressures and economic weakness, as well as geopolitical uncertainty, including military conflicts in Russia/Ukraine and the Middle East.
The return of the HFRI Fund Weighted Composite index was 3.87% year-to-date September 30.
In the first quarter, the HFR fund weighted index return was 1.19%; 2.18% in the second quarter; and 0.46% in the third quarter.
HFR's report showed that the performance-based asset change in the quarter ended Sept. 30 totaled $50.6 billion.
The largest performance change was $22.7 billion for event-driven strategies, followed by relative value with $16.9 billion and $14.9 billion for macro strategy hedge funds.
Equity hedge fund managers saw a collective decline of $4 billion from performance-based asset change.
Net asset flow by hedge fund asset class in the third quarter showed a total of $3.5 billion flowing into three strategy classes with $2.2 billion going to the event-driven hedge fund strategy; followed by relative value with $700 million; and macro with $600 million.
The equity hedge fund group had outflows of $4 billion according to HFR's report.
"Hedge funds have again navigated a powerful shift and negative reversal in risk tolerance and sentiment as positive correlation between equities and bonds rose sharply throughout 3Q presenting risks to classic, traditional long-only based strategies as well as opportunities for funds tactically positioned for these tends," said Kenneth J. Heinz, president of HFR in the report.