On the flip side, P&I's data showed that 15.9% of managers surveyed reported lower AUM in 2021 compared with 32.7% the previous year and a little less than 4% of managers reported flat AUM compared with just under 2% the year earlier. About 16% of hedge fund firms in the P&I universe were new participants in the survey or comparative data for June 30, 2020, was not available vs. about 19% the year before.
Industry sources said conditions were conducive for high hedge fund alpha production during the year.
"Performance was very strong across the board in all hedge fund categories in the year ended June 30 and many hedge funds produced alpha above their beta targets. During this period, hedge fund manager alpha was at levels not seen since 2008," said Daniel Stern, a New York-based senior managing director of alternative investment consultant Cliffwater LLC.
"Alpha production by hedge fund managers is not surprising given disruptions that happened in many sectors" since June 30, 2020, Mr. Stern said. Hedge fund strategies that also did very well in the year ended June 30 included credit and convertible arbitrage, he added.
Among strategies that had lower positive returns included fixed-income arbitrage and equity-market neutral, he said.
Cliffwater anticipates that the "very high alpha" that hedge fund managers generated will continue given continued uncertainty regarding inflation, low interest rates and how countries deal with coronavirus variants, Mr. Stern said.
Some hedge fund managers in P&I's universe could not accept more investment in their hedge funds despite attractive investment conditions, due to capacity constraints. For example, New York-based BlackRock Inc.'s worldwide hedge fund AUM increased 19.3% to $23.1 billion in the year ended June 30, and could have been higher but the firm closed some of its hedge funds to new investment because of capacity constraints. The firm ranks 16th on P&I's list.
"A lot of our growth in the year ended June 30 was from investment gains, but we have seen strong demand from new investors," said Abigail G. Geller, managing director and co-head of global distribution and strategic initiatives for BlackRock's alternative investors unit.
Ms. Geller said she couldn't provide specifics on investor demand, but noted that "we watch capacity carefully and are more conservative than other hedge fund managers. We've had a lot of momentum going into 2021 from all client types as investors turn to hedge funds to diversify their portfolios. We could have raised a lot more in our hedge funds without capacity controls."
Among the hedge funds BlackRock has closed for new investment are equity long/short equity strategies, Ms. Geller said, adding that the firm has "extensive waiting lists" for these funds.
Demand for hedge funds from all investor types is driven by concerns over low fixed-income returns and inflation, Ms. Geller said, noting that BlackRock's hedge fund portfolio managers see "a huge wave of opportunities" for strategies including event-driven, merger arbitrage, credit and equity.
Given the broad range of global investment opportunities, there has been wide performance dispersion between hedge fund managers, sources said.
"We haven't seen a level of material dispersion between hedge fund managers in 10 years. There's a wide gap between the top quartile of managers and the rest. They are investing aggressively and paying low prices for them. These managers are looking over the crevasse and across countries toward recovery," said W. Brian Dana, managing principal, consultant and director of marketable securities at Meketa Investment Group Inc., Westwood, Mass.
"The level of dispersion was very enticing over the 12 months ended June 30. We're getting a lot of inbound inquiries from hedge fund managers trying to capitalize on a good year," Mr. Dana said.
The broad range of investment opportunities for hedge fund managers widened the span of AUM gains and losses among individual hedge funds in P&I's universe in the year ended June 30.
New York-based Senvest Management LLC, which runs a contrarian, value-based strategy, had the largest AUM gain among survey respondents of 230.2% to reach $3.7 billion as of June 30, moving the firm up to the 72nd position from 98th the prior year.
Systematic manager Winton Group Ltd, London, had the largest AUM decline — 39.1% — to $7.1 billion as of June 30. Winton moved to the 51st position in P&I's 2021 manager ranking from 33rd the prior year. Winton's AUM was down 46.6% in the year ended June 30, 2020.
Both firms declined to comment about their performance.