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Hedge fund assets swell to new high

By Sam Jones

The global hedge fund industry has seen its assets swell to a new high, according to the latest data from a leading hedge fund database. Hedge funds now manage an estimated $2.13tn in assets on behalf of pension funds, governments, asset managers and high net worth individuals, Hedge Fund Research said in quarterly numbers released on Thursday.
The figures mean that the industry has added more than $700bn in assets since its post-crisis nadir in 2008 – the bulk of which has come thanks to positive recent performance from hedge fund managers.
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The healthy numbers come in spite of hedge funds having weathered their second worst year on record. In 2011the average hedge fund lost 5.25 per cent amid unpredictable and volatile markets.
Many fund managers were wrongfooted by the length and severity of the eurozone crisis, which dented portfolios that had been over-optimistically geared for an ongoing recovery in global equity prices.
The industry’s only other loss making years were in 2008, when the average fund suffered from losses of 19.03 per cent, and 2002, when the dotcom crash led to average losses of 1.45 per cent.
But over the first quarter of this year, funds have been buoyed by some of their strongest ever performance numbers. The average hedge fund manager returned 4.9 per cent over the first three months, according to HFR – the best quarterly returns in five years.
Over this period investors allocated a net $13bn to the industry. Money has not flowed to new funds indiscriminately, however. Equity-focused hedge fund managers have fallen out of favour in recent months, HFR data show.
Investors have instead turned their attention to so-called relative value strategies, which typically aim to profit from pricing anomalies in markets and are less directional in nature. Such strategies have been buoyed in recent years by the unconventional monetary easing actions of central banks, which have distorted prices in fixed income markets.
Relative value funds, which on average returned 0.15 per cent last year and are up 4.33 per cent so far this year, have pulled in $12.4bn net in extra client money in the three months to the end of March.
Other net gainers from inflows so far this year have been global macro funds, which aim to profit from macroeconomic dislocations such as changes in the price of bonds, currencies or interest rate derivatives.
Equity hedge funds and so-called event-driven hedge funds, which also typically trade in equities, have between them seen outflows of nearly $4bn in the past three months.
Both strategies underperformed in 2011. The average equity hedge fund lost 8.38 per cent last year.
Global macro strategies have taken in an extra $7.7bn in money so far this year amid ongoing concerns over the fragility of the global economy. The average global macro fund disappointed in 2011, with a loss of 4.16 per cent and is only up 0.99 per cent so far this year.