Assets under management at hedge funds hit a new high in the third quarter, rising 3.3% from the previous quarter to $688 billion, according to a report Tuesday.
Hedge Fund Research Inc., which tracks the industry, said its HFRI hedge fund performance index rose 4.3% in the third quarter on gains from investments focused on emerging markets, stocks, commodities, futures and currencies.
By contrast, the benchmark Standard & Poor's 500 stock index rose 2.2% in the quarter.
The top-performing category of hedge funds was emerging markets, which gained 10.3% in the third quarter, on average, HFR said.
Hedge funds focused on so-called distressed investments rose 5.5% in the third quarter, on average, while funds that "short" stocks lost 5.3%. Short-selling strategies can allow investors to profit when stock prices fall, but the strategy can backfire in a rising market.
Fund-of-funds hedge funds, in which a fund manager invests in other hedge funds instead of directly in stocks or bonds, now control $225 billion in assets, or about a third of all the money in hedge funds, HFR said.
That category of funds posted net inflows for both the third quarter and the trailing 12-month period, said Joshua Rosenberg, president of Chicago-based HFR.
"Year over year, the industry has continued to gain net new assets, with total inflow totaling approximately $54 billion on a trailing 12-month basis," including fund-of-funds investments and single-strategy funds, Rosenberg said.