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Total hedge fund assets increased for the sixth consecutive quarter in 1Q 2024, rising to an estimated $4.30 trillion, representing a quarterly increase of nearly $190 billion, as reported today by HFR in the latest release of the HFR Global Hedge Fund Industry Report.

The growth in hedge fund capital was driven by strong 1Q performance-based gains and net asset inflows, as investors increased exposure to both directional Equity Hedge, Event-Driven and uncorrelated Macro strategies.

The HFRI Fund Weighted Composite Index advanced +4.5 percent in 1Q24, led by directional Equity Hedge and Event-Driven strategies, with gains driven by exposure to Technology/AI, as well as acceleration in M&A. Larger funds produced higher relative performance, with the HFRI Asset Weighted Composite gaining +5.12 percent for the quarter. The HFR Cryptocurrency Index returned +47.9 percent in 1Q, bringing the trailing 6-month return to +106.9 percent.

Capital managed by Equity Hedge (EH) strategies surged by nearly $70 billion to begin 2024, rising to a record level of $1.25 trillion, driven by performance-based gains, as well as estimated net asset inflows of $8.5 billion. EH sub-strategy asset increases were led by Fundamental Value funds in 1Q, which increased by an estimated $37.0 billion for the quarter, bringing total EH: Fundamental Value capital to an estimated $706.8 billion. The HFRI Equity Hedge (Total) Index posted a strong gain +5.2 in 1Q after leading all strategy indices for 2023 with a gain of +11.4 percent.

Event-Driven (ED) strategies, which categorically focus on out of favor, often heavily shorted, deep value equity and credit positions, experienced an estimated asset increase of nearly $49 billion in 1Q, raising total ED capital to a record $1.21 trillion, inclusive of estimated net investor inflows of $8.0 billion for the quarter. ED sub-strategy asset increases were once again concentrated in higher beta Special Situations and Shareholder Activist strategies, with these increasing by $17 billion and $13.4 billion, respectively, in 1Q24. The HFRI Event-Driven (Total) Index gained +2.5 percent in 1Q24 with higher performance from larger managers as the HFRI Event Driven (Asset Weighted) Index advanced +3.9 percent, led by the HFRI ED: Activist Index, which surged +6.1 percent.

Uncorrelated Macro strategies posted its second-strongest quarterly performance since 2003, with the HFRI Macro (Total) Index surging +6.2 percent in 1Q24, trailing only the +6.7 percent gain in 1Q22 over the last 20+ years. Larger Macro funds delivered stronger relative performance in 1Q, as the HFRI Macro (Total) Index - Asset Weighted jumped +7.15 percent, led by Systematic Macro strategies and complemented by fundamental strategies. Total Macro capital increased by an estimated $44.8 billion in 1Q, inclusive of net asset inflows of $1.7 billion for the quarter, increasing total Macro strategy capital to $715 billion. Macro sub-strategy asset increases were led by quantitative, trend-following Systematic Diversified CTA strategies, which added an estimated $28.1 billion in 1Q. Macro sub-strategy performance was led by the fundamental HFRI Macro: Systematic Diversified Index, which surged +9.4 percent in 1Q, while the HFRI Trend Following Index jumped +8.1 percent for the quarter.

Hedge fund capital managed by credit- and interest rate-sensitive fixed income-based Relative Value Arbitrage (RVA) strategies also increased in 1Q as managers positioned for continued inflationary pressures and elevated interest rates, with RVA capital increasing by an estimated $25.8 billion in 1Q, raising total RV capital to an estimated $1.13 trillion. Multi-Strategy funds led RVA asset increases in 1Q24, adding an estimated $17.2 billion of capital to end the quarter at $692 billion. The HFRI Relative Value (Total) Index gained +2.5 percent in 1Q24 with sub-strategy performance led by the HFRI RV: Convertible Arbitrage Index, which advanced +4.0 percent.

Investor capital inflows in 1Q24 were heavily concentrated in the industry's largest firms with firms managing greater than $5 billion experiencing an estimated net inflow of $14.4 billion. Mid-sized firms managing between $1 and $5 billion experienced a smaller inflow of $1.67 billion, while firms managing less than $1 billion experienced an estimated inflow of $ 0.5 billion.

"Total hedge fund capital accelerated the year end surge in the first quarter to surpass the $4.3 trillion milestone, as managers focused on unprecedented risks and opportunities dominating allocations into mid-year 2024, with the most significant of these being geopolitical/military conflict, but also including ongoing volatile inflation, interest rates and macroeconomic considerations which have dominated the past two years. At the same time, managers are also accessing exciting, volatile, and rich opportunity sets in AI, Technology, Cryptocurrency and M&A, positioning portfolios to access these," stated Kenneth J. Heinz, President of HFR. "While 1Q24 was dominated by risk-on sentiment, early 2Q has experienced a sharp inflection point to intense risk- off sentiment, with growth areas such as semiconductors reaching correction territory on weakening demand and moderation of expectations for interest rate decreases in 2024. While many of the macroeconomic risks have remained and evolved over the past two years, geopolitical risk has accelerated to a historic, generational high, not only as pertaining to ongoing and potential military conflicts and foreign policy questions, but also relating to the political election cycle in the US, which has the potential to increase uncertainty and increased possibility for financial market dislocations associated with policy shifts. Managers which have demonstrated their ability to generate performance through both risk-on, risk-off and volatile transitions between these two paradigms are likely to attract increased interest from institutional investors seeking both opportunistic access to these opportunities while protecting portfolios from volatility and risk."