According to the latest report from industry tracker HFR, hedge fund assets have reached a record high this year of $2.97 trillion. This occurred despite investors removing $28 billion last quarter, for the largest outflow in a quarter since Q2 of 2009, during the financial crisis. So far, $51.5 billion has been pulled from hedge funds this year. The boost in assets are in line with a boost in performance, as the HFRI Fund Weighted Composite Index rose 2.9 percent. The benchmark gain for the year so far is at an impressive 4.2 percent. However, this is still below S&P 500, which gained 6.4 percent within the same period. The Preqin All-Strategies Hedge Fund index, which is another industry benchmark, is also having a pleasant ride, going up 4.06 percent the year thus far. The current expectation of investors is an increase of interest rates by the Federal Reserve, which would provide the opportunity to replicate outperformance, as market volatility goes up.
“Total hedge fund industry capital has reached a record high as the U.S. economy prepares to conclude an extended interest rate cycle which has de-sensitized many investors to risks in financial markets, while suppressing asset volatility and hedge fund performance in recent years,” HFR President Kenneth Heinz said in a statement. “As rates are allowed to normalize, fundamental, mean reversion across many specialized long short strategies is likely to drive strong performance and industry growth into 2017,” he added. According to HFR, the larger hedge funds are the ones that experienced the bulk of the redemptions. Of the $28 billion of outflows for the quarter, $22 billion came from companies with assets under management of at least $5 billion. In the first half of the year, Brevan Howard had redemptions of more than $3 billion. Other major asset managers hit were Richard Perry, Dan Och and John Paulson.