The hedge fund industry continued its strong resurgence in Q2 2021 as more managers delivered positive year-to-date returns and funds captured larger returns versus the previous quarter, according to research from asset servicer Citco.
Analysing global hedge fund industry performance patterns, trade and treasury volumes and investor flow trends, Citco’s Q2 2021 Hedge Fund Report found that all fund strategies delivered positive returns in Q2, delivering an overall 6 per cent weighted average return versus 2.75 per cent in Q1.
The research found that the best performing strategy was commodities, achieving a weighted average return of 8.33 per cent for the quarter.
Overall, the volume of funds delivering a positive annual return increased from 73.4 per cent in Q1 to 82.03 per cent in Q2, with larger funds sized $3 billion plus in assets under administration producing the best returns at 7.69 per cent and higher weighted average returns in most categories.
Citco says a strong correlation exists between market volatility and trade volumes, and a dip was observed in trade volumes from the record peaks of March. However, Q2 ended with an 8.5 per cent increase in year-to-date volumes up to June compared to the same period in 2020.
Meanwhile, trading of equity swaps was up 44 per cent in Q2 2021 relative to Q2 2020, indicating a broader use of the product amongst the hedge fund industry.
Increased trade activity was supported by increased investor confidence in alternative investments.
Gross subscriptions for Citco-administered funds were $50.5 billion in Q2, with a clear preference for allocations to multi-strategy, global macro, private equity hybrids and funds of funds, while equities and arbitrage experienced net outflows.
Reversing a recent trend, managers in Asia had outflows, while their peers in Europe and North America all added to their capital base.
Declan Quilligan, head of hedge fund services, Citco Fund Services (Ireland), comments: “With elevated trade activity and capital inflows industry-wide, we continue to emphasise the importance of robust infrastructure and operations for the hedge fund industry.”
Quilligan explains: “We are seeing strong appetite from managers to better leverage outsourced middle office solutions and expertise availing of streamlined, digitised and more transparent treasury and accounts payable workflows.”
“In this environment, Citco’s proprietary technology and specialist services will continue to support the global alternatives industry through 2021 and beyond,” adds Quilligan.
