By Nell Mackenzie
LONDON (Reuters) -Global hedge fund capital rose to a record of almost $5 trillion in the third quarter and the number of hedge funds is at a decade peak, reflecting an influx of new money into the sector, a report by Hedge Fund Research (HFR) showed on Thursday.
Global hedge funds numbered 8,464 as of the end of the third quarter, said research firm HFR, which tracks hedge funds, their returns and the size of the industry.
The growth coincides with an almost $34 billion of new investor money allocated to hedge funds in the third quarter, the highest quarterly net asset inflow since the third quarter of 2007, said HFR’s report.
Total global hedge fund industry capital rose for an eighth consecutive quarter in the third quarter to a record $4.98 trillion, HFR said.
The number of new hedge funds and the size of existing funds has grown sharply in recent years, with fund leverage ratios hitting a five-year high earlier this year, Reuters previously reported.
In the latest quarter, the largest U.S. banks led by JPMorgan Chase, Goldman Sachs, and Bank of America flagged big profits from the booming business of prime brokerage, which involves lending cash and securities to hedge funds to help execute large trades.
“The hedge fund industry has experienced historic growth and performance in recent months,” said HFR president Kenneth J. Heinz in the note, adding the growth had been driven by a combination of “powerful trends” including merger and acquisitions and increasing cryptocurrency investment.
Investors such as pension funds, family offices and sovereign wealth funds allocate portions of their portfolios to hedge funds.
This brought the total year’s new client inflows for the year to $71 billion, the strongest year so far for inflows in the first three quarters since 2014, said HFR.
Equity hedge funds saw the highest net amounts for the third quarter, with a new $18 billion of flows, followed by relative value hedge funds which trade the price of one financial asset against another, the report said.
Net inflows are investment money from allocators and these figures do not include the performance values of leveraged trading assets which can rise and fall depending on market performance.
(Nell Mackenzie; editing by Dhara Ranasinghe and Keith Weir)
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