Last year, 102 firms reported assets of $1.44 trillion.
Assets under management by 91 hedge fund managers that participated in P&I's survey in both 2023 and 2022 produced aggregate assets totaling $1.37 trillion in 2023, roughly flat from a year ago.
"The hedge fund industry is more steady and very strong and many managers had good performance in the year ended June 30, 2023, compared to the year before," said Kenneth J. Heinz, president of HFR, a hedge fund tracker, in an interview.
The HFR Fund Weighted Composite for the year ended June 30, notched a 5% gain compared to -5.6% the prior year.
By strategy, equity hedge's 2023 return was 7.6% compared with -12% in 2022; aggregate performance of event-driven strategies was 5.3% in 2023 vs -6.8% in 2022; relative value performance was 4% in 2023 and -1.2% the prior year; and macro strategies were down 0.4% in 2023 compared with 7.9% in 2022.
By way of comparison, the S&P 500 index was up 19.6% in the year ended June 30, 2023, and down 10.6% last year.
When it comes P&I's hedge fund rankings, Bridgewater Associates again remained on top, with $97.2 billion, although assets slid 23% for the year.
“In March of 2023 as a part of the firm's restructuring, Bridgewater decided to proactively cap the size of Pure Alpha to benefit clients and raise the odds of hitting or exceeding its performance target, which included also putting capital into artificial intelligence and machine learning, expanding in Asia and in equities and sustainability," according to a spokesperson for the firm.
Man Group, ranked No. 2, dipped about 5%, to $69.9 billion in hedge fund assets.
Citadel LLC moved up to the third spot with $59.5 billion under management from fifth place the year before, with hedge fund assets up 12.3%.
Consultant James Neumann, partner and chief investment officer at Sussex Partners U.K. said "the outlook going forward will see fundamentals normalizing as well as hedge fund managers change their target returns to attract more money from asset owners who are anxious to find 6% and higher returns."
He added that "hedge funds should shine and will protect portfolios in a dislocation market. The secret sauce is hedge funds' risk-management capability and asset owners will be interested."
He also noted that a fair number of hedge fund managers are raising their target returns to attract more assets.
Mark Anson, CEO and chief investment officer of Commonfund, an OCIO manager with about $30 billion in assets under management, said the firm uses hedge funds in an "absolute-return format."
"We're looking for hedge funds that have low exposure to what we consider the three main betas or market exposures out there: low exposure to the public equity markets, hedge funds that have low exposure to duration risk or the bond markets, and then hedge funds that have low exposure to credit risk," Anson said.
He said it's difficult to find hedge funds that don't have exposure to those risks as Commonfund is looking for hedging capabilities more than return potential, a reversal from 20 years ago.
He added Commonfund's hedge fund portfolio was up in 2022 when equities and bonds fell.
"When you want to have hedge funds do well is when stocks and bonds are doing poorly. And that's how we've constructed our portfolio. So it's less about trying to get double-digit returns, and we really peg our hedge funds just to single-digit returns, it's really more to be that ballast," Anson said. "When things go really bad, we expect to have less correlation to the public equity in bond markets and for that hedge fund portfolio to do well."
Hedge funds-of-funds specialist Evanston Capital Management is seeing a fair amount of interest in hedge funds from asset owners as they seek both portfolio protection and diversification, said Kristen VanGelder, the firm's deputy CIO and partner.
She noted that relative value and global macro strategies are good diversifiers in the current market, and while asset owners want these kinds of strategies in their portfolios, it's been slow when it comes to making decisions to invest more in hedge funds with the hope of reaching a 5% return, VanGelder said.
Evanston Capital managed $4.4 billion as of Aug. 31.
Trend-following hedge fund firms have retained their appeal with a range of asset owners, said co-founder Martin Lueck from Aspect Capital, a global macro manager.
The return of the fund's flagship fund Aspect Diversified fund was up 4.5% through the end of August, company data shows.
"We thrive on a bit of dispersion and uncertainty in the markets. Volatility and uncertainty, which if navigated well, offers investment opportunities," Mr. Lueck said.
Mr. Lueck stressed "there's a thin veneer of confidence in what's happening now. There's an increase in global dispersion and I'm worried about concentration."
That said, Mr. Lueck said he's "not unhappy with this environment because uncertainty creates investment opportunity."
He added that asset owners are "looking for diversification in the current unsettled market" and the year ended June 30, 2022, was the best year on record especially for systematic strategy managers because of a high level of diversification that continues in this year.
Aspect Capital had $7.5 billion as of June 30, with assets down 24% from the prior year.
Ruffer, a pure-play global macro global specialist manager, and its staff is excited about the current investment environment, said Omar Kodmani, head of international and institutional.
He said that Ruffer found that its discretionary global macro strategy provided a strong defense for investors in the year ended June 30, 2022.
In 2023, the firm's investment team is focusing on diversification, Mr. Kodmani said, noting that investors also are seeking diversification as well as risk reduction.
"Macro will do better than other strategies as we capitalize the market," Mr. Kodmani added.
Ruffer reported assets of $31.1 billion as of June 30, roughly on par with $31.7 billion as of the same date a year earlier.