The figures show that for all the ups and downs in their fortunes before and after the 2008 financial crash, hedge funds remain an important toolkit for wealth managers and other players in global markets.

The global hedge fund sector passed the $4.0 trillion milestone at the start of 2022, rising by about $400 billion from a year before and benefiting from a broadly positive set of performance figures, data shows.

While debate is unlikely to end over whether the bulk of hedge funds justify their after-fee returns compared with index-tracker funds or more conventional actively run portfolios, they remain an important destination for wealth management clients. 

Hedge Fund Research, the Chicago-based group tracking the sector, said in a report last week that the HFRI Fund Weighted Composite Index (FWC) posted a gain of 0.5 per cent for the fourth quarter of 2021, bringing the full-year 2021 performance to +10.3 per cent. The 2021 gain trails only the prior two years as the strongest years of performance since 2009. The investible HFRI 500 Fund Weighted Composite Index gained 9.9 per cent for the full-year 2021, HFR said. 

“Year-end capital flows also indicated institutions are actively and tactically rebalancing portfolios across strategies, sub-strategies and firm sizes, focusing intently on portfolio duration, credit and interest rate sensitivity, strategic commodity and equity market exposures, as well as advanced metrics of defensive capital preservation,” Kenneth Heinz, HFR president said. “Funds which have demonstrated their strategy’s robustness through the multiple market cycles since the beginning of the historic pandemic and which are effectively positioned to navigate these multi-asset trends are likely to lead industry performance and growth into the new year.”

Event-driven strategies, which concentrate on unloved, often heavily-shorted, deep value equity and credit positions, extended asset increases, with capital rising more than $155 billion in 2021 to surpass $1.115 trillion, trailing only equity hedge as the largest strategy area of capital.

Total capital invested in equity hedge strategies experienced an increase of more than $133 billion for 2021, bringing total EH capital to a record $1.227 trillion at the beginning of 2022.

Capital managed by credit and interest rate-sensitive fixed income-based relative value arbitrage strategies increased by over $86 billion for FY 2021, to begin 2022 at $1.027 trillion. 

Total capital invested in macro strategies rose above $33 billion in 2021 to end the year at $637.1 billion AuM, led by increases in systematic diversified/CTA and commodity strategies.