The Hedge Fund universe continues to enjoy a positive year in terms of performance and net new inflows. The Barclay Hedge Fund Index reported a YTD positive performance of 3.23% (as of July 31st) while the industry recorded a new high in AUM at $2.8 trillion.
For the current quarter, the strategies of favor in terms of new allocations were Relative Value Arbitrage and Event Driven. On the other hand, quantitative strategies suffered a net outflow of $3.7 billion.
As far as individual strategies, Event Driven was strongly supported by an M&A environment which recorded almost $1 trillion in activity during the second quarter of the year. The return of mega-size deals, the emergence of tax inversions and an increase in hostile transactions are all elements that kept the space vibrant.
Global Macro funds posted mixed performances as emerging markets and commodity driven strategies did fine but diversified discretionary continued to suffer from a historically low volatility environment. Low volatility also hit managed futures which are historically underperforming.
In the Credit universe, we note significant developments in the Argentine situation and the country battle against hedge fund manager Paul Singer which caused yet another default in the country’s sovereign debt. Puerto Rico also moved toward a restructuring of its obligations.
Additionally, our research indicates a general feeling by most managers that the regime of low volatility may be ending especially as we approach the end of the Fed’s quantitative easing program. Managers also seem to still have a positive view of European opportunities.