Hedge fund capital hits record in 2012

Total hedge fund assets increased to $2.25 tn last year as main index rose 6.2 percent, Hedge Fund Research says

Hedge fund assets rose by $60 bn last year as investors added new cash to their hedge fund investments and their existing funds grew by more than 6 percent, according to industry analysis firm Hedge Fund Research (HFR). Total capital in the hedge fund industry rose to a record $2.25 tn last year.

New inflows into hedge funds totaled $34.4 bn last year and the HFRI Fund Weighted Composite Index increased by 6.2 percent, according to HFR. The increase in hedge fund assets in 2012 was roughly evenly split between new investments and performance gains.

The gains in the HFRI Fund Weight Composite Index have now more than made up for losses from earlier years, so investors mirroring the composite index would have gained 3.5 percent over the past three years and 1.5 percent over the past five years.

In the fourth quarter of last year alone, the HFRI Fund Weighted Composite Index increased 1.3 percent, beating overall declines in the equity market in the quarter, and drawing in net investment inflows of $3.4 bn, HFR says. Despite the inflows, the quarter was the slowest last year for fresh investments.

‘Hedge funds posted performance gains in Q4 2012 as global financial markets struggled with the political and macroeconomic uncertainty that had adversely impacted performance throughout much of the year, including the European banking and sovereign debt crisis, and the US fiscal cliff negotiations,’ HFR comments in a press release announcing the 2012 industry results.

The biggest percentage performance gains in the hedge fund industry last year came in funds focused on asset-backed fixed income investments, according to HFR data. The HFRI RV: Fixed Income Asset Backed Index grew 16.7 percent last year, bringing gains over the past five years to 10.8 percent. The index is also the best performer over the six-year period from the end of 2006 to the end of 2012.

Next came funds focused on investments in Asia ex-Japan, as the HFRI Emerging Markets: Asia ex-Japan Index increased 12.05 percent last year, paring five-year losses to 1.4 percent. In third place was the HFRI RV: Fixed Income-Corporate Index, which rose 10.8 percent, bringing five-year increases to 4.4 percent.

The biggest loser of the year was HFRI EH: Short Bias Index, which measures funds focused on shorting certain sectors of the market to varying degrees throughout the year. The index dropped 17.5 percent last year and is down 7.9 percent since the end of 2006, according to HFR data.

In the fourth quarter of last year alone, hedge fund performance gains were led by funds focused on Eastern Europe and Russia, an area that has suffered heavy losses over the last several years. The HFRI Emerging Markets: Russia/Eastern Europe Index rose 3.6 percent in the fourth quarter. Over the year, the index rose 9.7 percent, reducing five-year losses to 8.9 percent.

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