HFR: Hedge fund industry assets rebound 7.4% in Q2

The hedge fund industry in the second quarter recovered some of the ground lost in the first quarter, with a rebound in total assets of 7.4% to $3.18 trillion for the quarter ended June 30, data released Monday by Hedge Fund Research showed.

By contrast, hedge fund industry assets fell 11% in the first quarter to $2.96 trillion due to the effect of the COVID-19 pandemic on global markets.

HFR in a news release accompanying the asset-flow report attributed the $220 billion increase in assets under management in the second quarter to the 9.1% return of the HFRI Fund Weighted Composite index during the period, the strongest quarterly return since the second quarter of 2009 when the index returned 9.2%.

In fact, the asset gain for HFR's hedge fund universe in the quarter ended June 30 was entirely driven by performance because all four of HFR's broad strategy groups experienced net outflows and positive collective returns, the firm's data showed.

The aggregate performance-based gain for the hedge fund industry as a whole was $231.7 billion in the quarter ended June 30, compared with a performance drag of $333.2 billion in the prior quarter.

Total net outflows from the hedge fund industry decreased to $12.2 billion in the current quarter from $33.3 billion in the previous quarter.

The breakdown of net outflows and performance-related changes within HFR's four broad hedge fund strategy categories in the quarter ended June 30 were:

• The equity hedge category had the strongest performance gain of $95.5 billion, with $4.6 billion of net outflows in the three-month period ended June 30.
• Event-driven managers had aggregate performance gains of $75.9 billion and net outflows of $2.3 billion.
• Relative-value hedge funds saw $52.2 billion of return-based gains and net outflows of $1.8 billion.
• Macro strategies had performance growth of $8.1 billion and net outflows of $3.5 billion.

HFR researchers noted in the report that net outflows slowed to an aggregate $9.4 billion in the quarter ended June 30 for the industry's largest hedge fund managers, those with assets of at least $1 billion. In contrast, these managers experienced collective net outflows of $31.7 billion in the prior quarter.

HFR also reported that the estimated number of hedge funds worldwide fell to 7,978 from 8,081 in the three-months ended June 30, while the hedge funds of funds declined to 1,151 from 1,167.

The surge in assets in the second quarter was led by technology, activist and corporate fixed-income substrategies, said Kenneth J. Heinz, HFR's president, in the news release.

"Extreme volatility in (the first half of 2020), including both the (first quarter downward) spike and (second quarter) reversal represents a sharp and dramatic contrast to the beta-driven, risk-on sentiment which dominated 2019, creating an opportunity-rich environment for long/short hedge fund performance generation," Mr. Heinz said.

"While capital levels increased sharply in (the second quarter), it is likely that asset gains continue into (the second half of 2020) alongside inflows from institutional investors that position for continued virus uncertainty, including humanitarian, economic and geopolitical implications, as well as social unrest and the upcoming U.S. elections, with these thematic drivers contributing to a strong performance environment through year-end," he added.