At the beginning of 2024, hedge fund capital surpassed the $4 trillion mark, with a focus on factors such as inflation, higher interest rates and macroeconomic uncertainty, data showed.
The HFR Global Hedge Fund Industry Report revealed that total hedge fund assets rose to an estimated $4.11 trillion in 4Q 2023, marking the fifth consecutive quarterly increase with a $112 billion gain.
The HFRI Fund Weighted Composite Index grew by +7.6 percent in 2023, driven by equity hedge and event-driven strategies, particularly those exposed to Technology/AI and an uptick in M&A.
Event-driven strategies experienced an estimated $62.3 billion increase in 4Q, reaching a record $1.158 trillion, with sub-strategies in special situations and shareholder activism leading the growth.
Equity hedge strategies saw a surge of $49.6 billion in 4Q, reaching $1.181 trillion, driven by fundamental value funds. Hedge fund capital managed by credit- and interest rate-sensitive fixed income-based relative value arbitrage strategies, particularly multi-strategy funds, added $22.9 billion in 4Q, reaching an estimated $1.10 trillion.
Uncorrelated macro strategies faced a narrow decline in 2023, with a -0.6 percent fall in the HFRI Macro (Total) Index, leading to a reduction in total Macro strategy capital to $670.5 billion. Smaller hedge funds experienced net outflows, while mid-sized firms had a smaller outflow, and the largest firms received a net inflow of $2.7 billion in 2023.
In 2023, amid general financial market volatility, smaller hedge funds, managing less than $1 billion, faced unfavorable capital flows, experiencing estimated net outflows of $10.2 billion. Mid-sized firms managing between $1 and $5 billion saw a smaller outflow of $2.0 billion. In contrast, the industry’s largest firms, managing over $5 billion, received an estimated net inflow of $2.7 billion.
According to Kenneth J. Heinz, president of HFR: Investors are likely to remain focused on strategies which have demonstrated their ability to navigate the shifting volatility, not only in 2023 but over the tumultuous past four years, with a keen sensitivity to geopolitical risks, M&A opportunities, and defensive capital preservation in 2024.”
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