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Hedge fund assets soar to record high amid boom in trading profits

Traders on the floor of the New York Stock Exchange.

Source: NYSE

The pandemic era has been great for hedge funds, which have seen their assets boom to a record amid high hopes for the economy and huge government spending.

Total assets for the industry swelled to $4.07 trillion as of the end of March, according to the most recent data from BarclayHedge. Assets under management first topped the $4 trillion mark in February.

That growth has come thanks both to solid performance and heightened interest from investors who continue to plow cash into the space. Over the past 12 months, hedge funds have made more than half a trillion dollars – $552.1 billion – in trading profits alone.

In that time, assets under management have swelled more than 42%.

“Easing of lockdown restrictions, optimistic economic forecasts, rising equity and commodity prices and President Biden’s $1.9 trillion pandemic recovery plan buoyed investors’ optimism,” said Sol Waksman, president of BarclayHedge.

Hedge funds continue to trail the S&P 500 in returns, but still have made handsome profits amid a solid backdrop for risk assets. The Barclay Hedge Fund Index gained 7.06% year to date through April, against the 11.84% return from the S&P 500 Total Return Index, which includes dividends.

While the market action has been focused on stocks, it actually has been bond funds that have attracted the most hedge fund interest. The group saw $6.9 billion in new investor money for March despite the looming threat of higher yields, which bring down bond prices and generally mean losses for funds.

Funds that bet on specific sectors took in $5.8 billion, while Asia funds attracted $5.6 billion, event-driven saw $3 billion and multi-strategy gathered $2.9 billion.

Despite money going to Asia-focused funds, hedge fund investors generally soured on emerging markets, redeeming $3.8 billion of their holdings. Equity funds with a long bias also suffered $3.3 billion in outflows, while macro funds lost $1.7 billion.

The trends come amid skyrocketing federal spending and continued easy-money policies from the Federal Reserve. The Biden administration just released a $6 trillion budget proposal, which includes $5 trillion in new federal spending over the next decade. Meanwhile, Fed officials have promised to keep interest rates anchored near zero and asset purchases pegged at a minimum $120 billion a month until the economy gets much closer to full and inclusive employment.

While a recent Fed report indicated stability concerns if the surging asset prices should take a sudden downturn, central bank vice Chairman Randal Quarles said Tuesday he thinks the system is well-prepared for a sell-off.

“Risks to the financial system are only moderate now. They’re certainly not elevated,” Quarles said.

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