The volume of total hedge fund assets in the market hit a record in the first quarter of 2024 at $4.3 trillion, according to a new report from Chicago-based research firm HFR. The amount represents an increase of $190 billion from the fourth quarter of 2023 and was driven by strong earnings and net asset flows. This marked the sixth consecutive quarter of asset growth for the asset class.
According to Kenneth J. Heinz, president of HFR, investors' desire for access to specialized opportunities coupled with concerns about capital protection will likely continue to drive people to invest in hedge funds over the next decade.
London-based research firm Preqin predicts that between now and 2028, hedge fund assets are likely to grow by 3.5% annually to $5.2 trillion globally. According to Preqin, the asset class delivered an annualized return of 8% through 2023. Investment strategies focused on relative value, macro trends and specific sectors (such as cryptocurrencies) delivered the best performance during that time.
According to Heinz, HFR recorded strong performance across the board in the first quarter of 2024, although hedge funds focused on uncorrelated macro strategies continued to lead. While uncorrelated macro strategies tend to be favored in less risky environments, expectations of lower inflation and future interest rate cuts led to more optimistic investor behavior in late 2023 and the first quarter of 2024, it noted. apparently Heinz. There has since been a softening of that outlook after signs emerged in early April that inflation was not easing as much as the Fed had previously hoped.
“Clearly, there was an inflection point in early April,” Heinz noted. “Inflation is not picking up, but people were expecting lower (numbers), and because of that, you've seen both stocks and bonds sell off on a less optimistic rate cut scenario that they had estimated for the second half of 2024.”
The HFRI Fund Weighted Composite Index increased by 4.52% in the first quarter, while the Asset Weighted Composite Index increased by 5.12%. The increase in the Fund's Weighted Composite Index was more modest than the 8.12% gain it posted for the full year 2023.
The HFRI Macro Index, which tracks hedge funds that follow uncorrelated macro strategies, rose 6.2%, marking its best performance since the first quarter of 2022. Under that strategy umbrella, the HFRI Macro Index: Index Systematically Diversified gave the best performance, with an increase of 9.39% in the first quarter.
Additionally, the HFRI Equity Protection Index rose 5.17% during the quarter, with particularly strong performance from the Healthcare Index (up 9.79%) and the Quantitative Leaders Index (up 9.11%).
The HFRI Composite Fund of Funds Index also recorded a gain of 4.17% during the period. The firm's FOF: Strategic Index was the strongest performer in that category, up 5.25%, followed by the FOF: Diversified Index, up 4.08%. HFRI FOF: Market Defensive Index returned 3.62%, and HFRI FOF: Conservative Index returned 2.17%.
According to HFI data, there were 990 funds of funds on the market in the first quarter.