Thursday, 20 January 2011 15:20
Hedge Funds experienced a substantial increase in assets over the fourth quarter of 2010, data provider Hedge Fund Research (HFR) said at an industry presentation on Wednesday. Industry assets increased $149 billion in the fourth quarter, the greatest quarterly increase on record, ahead of the $140 billion increase during the second quarter of 2007.
The record-breaking quarter brings total industry assets to $1.917 trillion, according to HFR data, near the all-time high of $1.93 trillion, recorded following the second quarter of 2008. HFR President Ken Heinz said that over 2010, $55 billion in net assets flowed to hedge funds, with $45 billion invested with firms managing $5 billion in assets or more.
While the data suggest that money flows into alternative investments still favors the largest industry players, the fourth quarter did show stronger flows to emerging managers than the first half of 2010 when large funds were even more dominant.
“The second half of 2010 was a historic time in the hedge fund industry, characterized by powerful and pervasive trends shaping the institutional landscape of the hedge fund industry”, Heinz said in a statement.
“As the industry is positioned to surpass its previous asset peak, global investors are focused on the dynamics of inflation protection, strategic specialization, enhanced liquidity, improved structure and transparency for accessing hedge fund performance in coming years.
The increase in assets came despite relatively poor performance by hedge funds over 2010, when hedge funds generated average returns of 10%, less than gains by more traditional mutual funds, and less than the 13% increase the S&P 500 index posted over the same period.
Heinz predicted that investors would focus on macro strategies in 2011 as uncertainty remains regarding central bank responses to inflation worries and as the euro-zone debt crisis continues to unfold.
Only 43% of funds ended the year above their high-water-mark, the level necessary to charge the lucrative performance fees that have become a hallmark of the industry. Still, despite the incentive problem that creates, many experts predict that flows will continue to improve and the industry will post record asset levels following the first quarter of 2011.