Recession-wary investors pour $9.1 billion into hedge funds in first quarter

By Svea Herbst-Bayliss

BOSTON (Reuters) – Hedge funds pulled in $9.1 billion in new money during the first three months of 2023, data showed on Friday, after last year’s hefty outflows as pension funds and other investors navigated a banking crisis and faced fresh fears of an economic downturn.

It was the first quarterly inflow for hedge funds since early 2022, new data from Hedge Fund Research (HFR) showed.

Some investors may have been chasing returns, fueled by last year’s relatively strong hedge fund industry returns that beat out a tumbling stock market, industry analysts said.

In 2022, aggressive Federal Reserve interest-rate hikes to fight runaway inflation slammed stock and bond markets, and investors pulled $55 billion out of hedge funds after having added in $15.12 billion in 2021.

Total industry assets now stand at $3.8 trillion, below the peak of $4 trillion which was hit in 2021.

Still worried by geopolitical risks and fears of higher prices, investors put “new capital to hedge funds in 1Q as bank and financial risk surged and the likelihood of an economic recession increased,” said Kenneth Heinz President of HFR.

The bulk of new cash, $3.4 billion, went into global macro funds, even as performance sagged in the first quarter, data showed. Another $3.3 billion was allocated to equity hedge funds with $2.1 billion going into relative value strategies that try to reduce market risk.

The HFRI Fund Weighted Composite Index returned 1.30% during the first quarter, compared with a 7.5% gain for the . Hedge funds often promise to make money in all market environments and warn clients that they will not necessarily beat strong equity market returns.

In 2022 when the S&P fell 20%, the average hedge fund lost 4.14%.

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