Graphic: Hedge funds build momentum
Worldwide hedge fund assets reached nearly $4 trillion as of June 30, up more than 4% over the prior three months, according to HFR Inc. Meanwhile, the quarter's $12.3 billion of net inflows was more than double the prior period. Thirty new hedge funds, net of closings, opened for business in the first quarter — after nearly 500 net fund closures in 2020.
Renewed hiring: After sliding since 2018, net hiring activity in 2021 was $3.4 billion through Sept. 9. Since 2010, hiring hit a peak of $11.4 billion in 2012. Asset owners had net outflows to hedge funds of funds the past two years, recovering to net inflows of roughly $100 million this year.
Net hedge fund hiring volume (billions)
Returns pick up: The renewed interest in hedge funds comes as returns across many categories have increased for the 12 months ended Aug. 31. Among the top performers over the period, the HFRI Event-Driven and HFRI Multi-Strategy indexes each returned 25%, while the HFRI Credit Arbitrage and HFRI Commodity indexes returned 17% and 16%, respectively.
Hedge fund index returns
Lower risk: For the 10-year period ended Aug. 31, four hedge fund strategies had lower betas than the S&P 500 as well as the S&P Risk Parity and HFRI Risk Parity indexes that targeted a 10% volatility.
Return vs. risk
| Index | 10-year annualized return | 10-year beta |
|---|---|---|
| HFRI Equity Market Neutral | 3.0% | 0.13 |
| HFRI Event-Driven | 5.9% | 0.40 |
| HFRI Credit Arbitrage | 5.8% | 0.29 |
| HFRI Multi-Strategy | 4.9% | 0.19 |
| HFRI Macro | 1.9% | 0.12 |
| HFRI Commodity | 1.9% | 0.12 |
| HFRI Relative Value | 5.0% | 0.24 |
| HFRI Fund of Funds Composite | 4.1% | 0.30 |
| S&P Risk Parity - 10% target volatility | 8.5% | 0.47 |
| HFR Risk Parity Vol. 10 Institutional | 6.0% | 0.42 |
| S&P 500 | 16.3% | 1.00 |
| Bloomberg U.S. Aggregate | 3.2% | -0.01 |
Endowments remain committed: The average hedge fund allocation by endowments stayed at 20% for fiscal year 2020 vs. 2015. Of the five large endowments, all but Stanford increased their allocations over the same time period.
Endowment hedge fund allocations
*2010 data are based on policy portfolio. 2015 data are the average of 11% - 21% target allocation. **Based on policy asset allocation for the merged asset pool, which primarily consists of the endowment. Sources: Pensions & Investments; HFRI Inc.; National Association of College and University Business Officers