Hedge fund assets increase by $100 billion in Q2 2009

Assets invested in the hedge fund industry increased by $100 billion (Dh367bn) in the second quarter of 2009, ending at $1.43 trillion, according to figures released yesterday by Hedge Fund Research (HFR), a provider of hedge fund industry data. This marks the first quarterly increase in assets since Q2 2008, when total industry capital peaked at $1.93trn. The asset growth was fuelled by performance gains during the quarter, as the HFRI Fund Weighted Composite Index returned 9.13 per cent, the industry's best quarterly gain since the fourth quarter of 1999. The strong performance was led by strategies focusing on emerging markets, convertible arbitrage and energy/basic materials. These three areas were among the weakest performers in 2008, underscoring the dramatic shift in market dynamics that has taken place thus far this year, said HFR. "Reflecting the diverse drivers of hedge fund industry performance, recent gains have occurred in an environment in which developed equity markets have been essentially flat", said Kenneth J Heinz, President of Hedge Fund Research. "Improved liquidity in credit markets contributed to narrowing some of the pricing dislocations that were created near the end of 2008, and the combination of improved credit markets, gains in emerging markets, and decreased risk aversion have driven broad-based gains in 2009." Even as performance improved, investors continued to withdraw capital from the industry, albeit at a much slower pace. Investors redeemed $42.8bn from hedge funds in the Q2, about 60 per cent less than the $103bn that was redeemed in 1Q09 and an even more significant drop from the $152bn that was withdrawn in 4Q08. Funds of hedge funds continued to experience a higher percentage of capital redemptions than single-manager strategies, as investors withdrew $33bn from such apex funds in Q2. Total capital invested in hedge funds via funds of hedge funds currently stands at $530bn, 37 per cent of the industry's total capital and well below the $825bn which were invested through funds of funds at their peak level in mid-2008, said HFR. The number of hedge funds, including both single-manager and funds of funds, remained almost flat during the quarter at 8,900. Despite performance gains, the industry remains below the high-watermark set in October 2007; the HFRI Fund Weighted Composite Index still requires an additional gain of 14.7 per cent to reach its previous peak. The index posted a gain of 9.46 per cent through June, while an asset-weighted version of that index returned 9.06 per cent. This indicates that, on average, funds with a lower asset base have outperformed larger funds in 1H09. In 2008, the asset-weighted version of HFRI posted a decline of 14.96 per cent, versus a 19.03 per cent decline in the equally weighted version. Keep up with the latest business news from the region with the daily Emirates Business 24|7 newsletter. To subscribe to the newsletter, please click here .