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Institutional Investment in Hedge Funds: Evolving Investor Portfolio Construction Drives Product Convergence
I
53
2006
2007
2008
2009
2010
2011
Directional Hedge Funds
$1,026
$1,310
$806
$1,008
$1,172
$1,102
Macro/Volatility Funds
$255
$323
$317
$337
$334
$398
Absolute Return Funds
$289
$302
$230
$229
$279
$296
Distressed Securities
$140
$245
$144
$183
$203
$201
Multi Strategy
$235
$365
$253
$245
$267
$277
Emerging Markets
$212
$329
$162
$262
$296
$257
Total
$2,157
$2,874
$1,912
$2,264
$2,551
$2,531
Directional As Percent
48%
46%
42%
45%
45%
44%
Directional hedge funds include Long/Short Equity, Event Driven/Special Situations, Fixed Income Non-
Arbitrage, Regulation D, Small/Micro Cap & Value, Macro/Volatility hedge funds include CTA/Managed
Futures & Macro. Absolute Return includes Convertible Arbitrage, Fixed Income Arbitrage, Market
Neutral Equity, Merger/Risk Arbitrage, Options Strategies & Statistical Arbitrage.
Source Citi Prime Finance Analysis based on eVestment HFN data
Chart 29: Breakout of Hedge Fund Strategies by Major Categories (Billions of Dollars)
Higher than expected correlations to beta and poor market
performance during a period of excessive volatility hurt
institutional interest in directional hedge funds, particularly
long/short funds that make up the majority of this category.
Strongly performing equity markets in the early part of this
year also dampened interest in this category, as have shifts
discussed in Section II concerning the role these directional
hedge funds play in dampening equity risk as opposed to
generating outright alpha.