Despite the headwinds of sporadic performance and pressure to switch allocations to low-fee passive products, the hedge fund industry nonetheless continues to increase in size. As investors brace for potential market uncertainty, hedge fund assets under management increased to $3.07 trillion, according to the latest HFR Global Hedge Fund Industry Report. The positive report comes as Goldman Sachs is forecasting a strong second quarter for hedge funds as well.

Wealth
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Hedge fund assets under management up $47.2 billion in first quarter 2017

With markets at all time high valuations, the US central bank withdrawing quantitative stimulus and geopolitical risks all around the world, institutional investors have made a decided move to invest in hedge funds.

Assets under management rose 7.3% in the first quarter of 2017, aided primarily by gains in Event Driven and noncorrelated Quantitative, Trend Following and Systematic strategies.

Investor outflows slowed to $5.4 billion, the lowest level since the fourth quarter of 2015, while inflows totaled $47.2 billion. The largest firms saw net outflows while smaller hedge funds witnessed asset gains. The report noted hedge funds managing between $1–5 billion saw net outflows of $500 million, while firms managing less than $1billion witnessed net inflows of $900 million.

The positive news for hedge funds came after a challenging 2016 that saw $70.1 billion leave hedge funds, the largest decline in assets under management since 2009.

“Hedge fund capital increased to an impressive third consecutive quarterly record, extending the recent growth trajectory and following the most challenging year of capital withdrawals since the post-Financial crisis in 2009,” Kenneth J. Heinz, President of HFR, said in a statement.

Automation - Global Robotics, Industrial Robots Industry Leaders hedge fund assets under management
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Machine beating man trend played out again in hedge fund assets under management flows

In the first quarter of 2017, Equity and relative value arbitrage strategies witnessed the biggest hedge fund asset declines. Event driven strategies were up by $16.2 billion on the quarter, bringing their total assets under management to $793.5 billion, with diversified multi-strategy and distressed sub-strategies benefiting most.

The theme of machine winning over man continued in the first quarter. The Macro category was a winner, with computer-driven systematic strategies leading the way with $4.9 billion of new capital. The sub-strategy now has total AUM of $294 billion and the increase is the fourth consecutive quarter of net inflows for CTAs, totaling over $15 billion of new capital in the last year. Human-based Discretionary Macro strategies did not fare as well, seeing outflows of $3.8, the fifth consecutive quarter of subscription redemptions.

“Sophisticated investors continue to strategically position for market trends that drive hedge fund performance, including oscillating patterns of optimism and reversals of the Trump, Yellen, Brexit, and Euro trades, with each of these impacted by the increased possibility of geopolitical tensions and conflict,” Heinz said. “Funds that continue to demonstrate their ability to navigate these trends and generate strong performance will lead industry growth in 2017.”