Hedge funds generally saw performance gains in a volatile first quarter, as the aforementioned banking risks "complemented the ongoing macroeconomic risks associated with generational inflation, sharp increases in interest rates, and elevated geopolitical risk."
The investible HFRI 500 Fund Weighted Composite index gained 0.5% in the first quarter, led by directional equity hedge and event-driven strategies, both of which "navigated a complex and dynamic environment of soaring bank risk including the collapses of Silicon Valley Bank and Signature Bank, generalized weakness in regional banks, and the government-facilitated acquisition of Credit Suisse by UBS," the report said.
Directional equity hedge strategies led both capital inflows and total strategy asset increases in the first quarter, as "tactical positioning through the March surge in risk, as well as underlying strength in technology drove gains," HFR said.
Total equity hedge capital increased by an estimated $33 billion to end the first quarter at $1.11 trillion, driven by "strong performance-based gains and an estimated net asset inflow of $3.3 billion," HFR said.
The investible HFRI 500 Equity Hedge index gained 2.9% in the first quarter, leading all strategy indexes for the quarter.
Event-driven strategies, which focus on out-of-favor, often heavily shorted, deep-value equity and credit positions, saw assets increase by $18.4 billion in the first quarter, pushing up total event-driven capital to $1.05 trillion.
The investible HFRI 500 Event-Driven index gained 1.1% in the first quarter, while the HFRI Event-Driven (Total) index rose 1.7% in the quarter.
Hedge fund capital managed by credit- and interest rate-sensitive fixed income-based relative-value arbitrage strategies increased by $12.9 billion in the first quarter, raising total RVA capital to $1.05 trillion.
The investible HFRI 400 (U.S.) Relative Value index gained 1% in the first quarter.
However, total macro strategy capital declined by $14.3 billion in the first quarter to finish the quarter at $663.3 billion.
The HFRI 500 Macro index fell 3.5% in the first quarter, with negative contributions from "quantitative, trend-following CTA (commodity trading adviser) strategies, as well as weakness in short fixed-income positions," HFR said.
These performance-based losses more than offset an estimated net asset inflows of $3.4 billion to macro funds in the first quarter.
Firms of all asset sizes saw net inflows in the first quarter. The largest firms (managing more than $5 billion) had estimated net asset inflows of $7.4 billion; firms managing between $1 billion and $5 billion had an estimated net inflows of $1.3 billion for quarter, while firms managing less than $1 billion saw net inflows of $330 million.
