Hedge Fund Assets Hit Record in 2nd Quarter

Fees lowest, returns highest in a decade

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Jul 19, 2019
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Investors poured the most money ever into hedge funds during the second quarter, surpassing a 2018 record, as returns soared.

Assets managed by hedge funds ballooned to $3.245 trillion at June 30, exceeding their previous record of $3.244 trillion set in the third quarter of 2018, Hedge Fund Research Inc. reported Friday. Year to date through June, assets grew by $142.5 billion, increasing by $63.7 billion in the second quarter and $78.8 billion in the first quarter.

Meanwhile, few investors were retrieving their money from professional long-short asset managers. Net redemptions were nearly flat at $4.8 billion, reflecting a significant slowdown from net $45 billion taken back over the previous two quarters.

A robust market and strong performance magnetized investors to the industry in the first half of 2019. The HFRI Weighted Composite Index, which measures hedge fund performance, rose 7.44% in the year’s first half, its highest first-half gain since 2009. The average hedge fund still fell short of the S&P 500 index, which returned 17.2% for the same period.


Gathering the most assets were the “largest and most established funds,” HFR President Kenneth Heinz said. Firms managing more than $5 billion experienced inflows, while firms managing less than $5 billion saw outflows, HFRI found. It was the first time these firms had seen inflows since the fourth quarter of 2017, as the investment picture brightened.

“Constructive, yet fluid developments in ongoing trade negotiations, as well as expectations for lower US interest rates in the near term have also contributed to an evolving macroeconomic outlook which has resulted in record levels for U.S. equites, but also represents a forward risk for valuations, especially with trillions of dollars of fixed income obligations trading with negative yields,” Heinz said. “Funds which are effectively positioned for the complexities of this environment, maintaining tactical long and short exposures across not only hedge fund strategies, but also across cryptocurrency and risk parity exposures, are likely to attract institutional investor capital throughout second-half 2019.”

In the second quarter, investors showed most interest in event-driven strategies focused on mergers and acquisitions and corporate transactions, plowing $5.3 billion into the funds. Equity hedge fund capital soared by $14.1 billion, led by strong performance gains and offset by outflows of $5.5 billion. The funds ended the quarter with $931.1 billion in capital, making it the largest strategy.

Though flows in and out have been mixed, the hedge fund industry has been booming for some time. A year ago, it was celebrating setting its new record for capital for its eighth consecutive quarter.

The same research group, HFRI, reported that new hedge fund launches increased in the first quarter as risk tolerance returned to the market. But many have not been faring well, with liquidations exceeding launches for the third consecutive quarter, which followed a four-quarter streak of net growth in the number of funds.

Meanwhile, hedge funds have reduced their notoriously high fees to their lowest since HFRI began keeping data in 2008. The average management fee declined by 2 basis points to 1.41%, and the average incentive fee fell by 30 basis points to 16.6%. Hedge funds launching in the first quarter started out even lower for management fees at 1.19%, and charged more for incentive fees at 18.79%.

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