Hedge funds grow at fastest rate in history as AI boom lifts markets
Equity rally and inflows from institutional investors take global assets under management up by over $400bn
Hedge fund assets grew by the largest amount in history last quarter because of the AI-driven boom in share prices and investors shifting away from private equity and credit funds.
Total assets under management grew by $409bn to $5.6tn last quarter, with much of that being due to positive investment performance, according to specialist data provider HFR.
Hedge funds lost money in a bumpy March after the outbreak of the Iran war. Since then, they have benefited from a huge equity rally led by chip stocks such as Samsung, AMD and SK Hynix.
“I think this is going to be a golden era for hedge funds after a long, long time,” said Shenan Dhanani, co-chief executive at Trium Capital, which manages $5.1bn in assets.
Hedge funds have also enjoyed strong investor demand, with the $134bn invested over the last three quarters being the largest inflow over a three-quarter period since 2007, the HFR data showed.
This has partly been down to positive returns during a period where the private equity industry has struggled to return capital to investors. Hedge funds often allow redemptions within between one and six months, while private capital vehicles traditionally take between five and seven years to return capital.
“You have a dissatisfaction with some of the private investments, so people are slowly getting money back from PE and they are not necessarily going to put that back in,” said Patrick Ghali, co-founder of Sussex Partners, which advises large investors on hedge fund allocations.
Macro strategies, where hedge funds make bets on key economic indicators such as economic growth and inflation, are the most desirable strategy so far this year according to HFR inflow data.
Allocators such as big pension funds and endowments have looked to insulate their equity portfolios from market swings caused by geopolitical risks, including the potential fallout of the Iran war or a further escalation of the global trade war that US President Donald Trump started last year.
However, while hedge fund exposure to equities can be a boon during rallies, there are signs that a reversal in equity markets could damage many funds. Hedge fund correlation to stocks last year was the highest it has been in at least five years, according to research from BNP Paribas published in January.
Hedge funds sustained large losses after Trump unleashed a global trade war in April last year, although they recovered their losses once he toned down the measures and the AI investment boom continued.
Allocators pulled over $100bn from the global hedge fund industry in 2022 when many failed to protect their investors from a global crash in equity markets.