Hedge funds don't always live up to their name in shielding investors from the vagaries of markets, but macro strategies appear to be on a winning streak – very appealing in current market conditions.

New hedge fund launches jumped to the highest level since the first three months of 2021 and reached the second highest quarter since the fourth quarter of 2017. The desire to start more funds has been partly driven by strong gains from macro-focused funds, which made ground while markets fell, figures show.

Launches rose to 185 in Q1 2022, jumping from 113 in the final three months of last year, the highest launch rate since 189 new funds were launched in Q1 2021, and the second-highest quarter since 190 funds were launched in Q4 2017. 

New macro hedge fund launches reached 45 in Q1, topping the event-driven and relative value arbitrage types of fund strategies. The only class they trailed was equity hedge funds, which saw an estimated 78 new funds launch, according to numbers from Chicago-based Hedge Fund Research.

Hedge funds’ famed ability over the years to ride out market storms – hence the term “hedge” – hasn’t always lived up to the sales pitches, but a period of outperformance by the macro sector has won over new admirers. Macro hedge funds typically attempt to profit from broad market swings caused by political or economic events. The war in Ukraine, for example, and the surge in inflation and rising interest rates, are exactly the kind of changes such funds try to tap into.

The investible HFRI 500 Macro Index has surged by 14.1 per cent since the start of this year through May, as generational inflation has contributed to steep equity market declines, rising interest rates and concerns regarding a slowing US economy.

HFR said the number of hedge fund liquidations increased narrowly from the prior quarter, as an estimated 126 funds closed their doors in Q1 2022, up slightly from 117 fund liquidations in Q4 2021.
 
After producing a strong +9.9 per cent return in 2021, the HFRI 500 Fund Weighted Composite Index has exhibited strong defensive capital preservation over the volatile start to 2022, topping equity market losses by over 2000 basis points by posting a narrow decline of -1.4 per cent through May.