According to a report from HedgeFund.net, total hedge fund assets increased 4.41% in Q2 of this year to $2.973 trillion. Of interests is that investors added an estimated $34.21 billion to hedge funds in Q2, while performance gains added another $91.28 billion to total assets. These gains would no doubt be higher if it were not for the correction in commodities that negatively impacted hedge funds in July (see previous post).
Also of interest is how the dollar amount of fund liquidations in Q2 was actually larger than new fund launches by an estimated $8.52 billion, resulting in the third largest level of fund closures on record. This is not unexpected given the recent moves of some hedge fund investors from smaller to larger, more established funds (see previous post). In fact, large funds are attracting enough capital to grow the industry at a organic growth rate 11.06% over the last year (with organic growth defined as the change in total assets not including increases due to performance).
When broken down by regions, European hedge funds saw increased organic growth, while Asian hedge funds saw negative growth. In addition to investment funds moving around the globe, allocations to emerging markets have also continued to slow over the last three quarters, with Q2 allocations only increasing 0.64% over Q1, with Asia and Latin America funds seeing net redemption. Developing Europe saw funds increase 9.39%, while Africa and the Middle East experienced Q2 increases of 18.78%, as Goldman Sachs and others move into the region (see previous post).
Finally, investors continued to reduce allocations to equity strategies and move money into fixed income related strategies. Broad commodity exposure increased organically once again in Q2, but energy sector hedge fund assets continued to drop in Q2, falling 6.63%, the third straight quarterly decline. Many of these funds have equity focused managers, so the decline matches some of the general decline in equities. Nonetheless, with the high run-up in energy prices these funds are still at an estimated $122.49 billion, the largest specific group. No doubt a combination of lower energy price and profit taking is contributing to the decline in these funds.