The data group named eVestment has a report of inflows of capital for the hedge fund industry which was published on Wednesday. After another $22 billion in new capital was allocated to hedge funds in May, the industry now has surpassed $3 trillion in assets under management for the first time on record. The results were also a record in April, surpassing the peak from the second quarter of 2008.

eVestment noted that the gains in assets were due to both new allocations and performance gains. This was listed as the fourth consecutive month of elevated inflows – making year-to-date inflows of $93.3 billion. Another observation is that this makes 2014 the largest five month total to begin a year since 2007.

Is any of this a worry? Think back to what was happening in 2007 and 2008, which was just before the recession.

eVestment’s report said,

“Performance gains added $37.8 billion to total AUM for an estimated asset weighted return of 1.28% in May, well above the 1.00% the industry produced on an equal weighted basis during the month. For the first five months of 2014, equal and asset weighted returns are nearly identical, both just below 2.00%.”

The key observation here is that allocations to equity continued in May, and has been a theme since June 2013. May saw some $11.5 billion added to equity strategies and 2014 year-to-date inflows were $59.4 billion (also the highest five month span since mid-2007).

Investors in May also showed inflows into alternative credit strategies, event driven strategies (including activist strategies), Mortgage-backed securities strategies, and macro hedge fund strategies.

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How large the hedge fund industry can grow may be anyone’s guess. When it was $2 trillion, there were questions whether it could make it to $3 trillion or $4 trillion. Now that $3 trillion has been hit, the next hurdles will be $4 trillion – or even $5 trillion.

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