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Global Hedge Fund Assets Surge But Smaller Funds Wobble

The industry's total assets surged to record levels during the first quarter, with most of that money going to established firms managing at least $5 billion.

Established hedge funds proved to be much more popular with investors than their nascent counterparts during the first quarter, as the industry's total assets soared to a record level during the period.

The amount of money investors allocated to hedge funds during the first quarter skyrocketed by more than $16 billion to push the industry's total assets to a record $2.13 trillion, according to Hedge Fund Research. Larger, more established hedge funds with over $5 billion in assets under management raked in $18.3 billion in new capital during the period, the research firm added.

[Why Launching a Hedge Fund Is Harder Than Ever.]

But smaller, less established players didn't fare as well HFR noted. Hedge funds with less than $5 billion in assets saw outflows of $2 billion during the quarter, the company said, underscoring just how difficult the environment is for hedge fund startups. Advanced Trading has previously reported that in today's investment landscape, potential clients want to see a track record of at least three years, a strategy that inspires confidence and no more than two consecutive months of drawdown before investing in a hedge fund.

During the first quarter, the strategies that generated the most confidence among investors were either fixed income-based or macro-focused, according to HFR. The research firm said investors poured $12.4 billion into fixed income-based relative value arbitrage strategies in the first-quarter, and funneled $7.8 billion into less correlated macro funds.

"Investors responded favorably to the risk shifting which occurred across financial markets in the first quarter, continuing the trend of allocating to arbitrage and macro strategies which exhibit lower directional beta to equity markets," HFR president Kenneth Heinz said. "The record level of assets and the shifting distribution of these are indicative of powerful trends shaping the hedge fund industry in 2012."

But even as the appetite for less correlated assets rose, investors redeemed $2.9 billion from funds with equity hedge-based strategies, and $940 billion from event-driven funds.

As the Senior Editor of Advanced Trading, Justin Grant plays a key role in steering the magazine's coverage of the latest issues affecting the buy-side trading community. Since joining Advanced Trading in 2010, Grant's news analysis has touched on everything from the latest ... View Full Bio

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