HFN Report Sees Hedge Funds Assets At $2.4 Trillion

by Carla Johnson, Investors Offshore.com

18 May 2007

HFN (HedgeFund.net) has released the Q1 2007 Hedge Fund Industry Asset Flow Report which claims that fund assets have risen to an estimated $2.401 trillion.

HFN estimates total hedge fund asset levels increased by 11.5% in the first quarter of 2007, the largest quarterly increase on record.

New assets flowing into the industry were estimated at $168.6 billion and fund performance increased total assets an additional $78.9 billion. Due to the findings of the administrator survey, prior quarterly estimates have been revised upwards, HFN said.

According to the survey:

Total fund of fund assets increased 6.0% to an estimated $1.143 trillion including $26.2 billion in new assets. Fund of funds now account for 48% of the assets in single manager funds compared to 50% in Q4 2006 and 50.3% in Q3 2006, an indication that large institutional investors are becoming more comfortable allocating directly to hedge funds.

Funds which invest assets globally were the fastest growing of any broad regional classification, likely the result of large institutional allocations requiring global diversification. Total assets in funds with a global investment focus increased an estimated 13.3% in Q1 2007 to $1.172 trillion.

Latin America was the fastest growing specialty investment region. Total assets in funds focusing investments in Latin America increased almost 48% to $10.1 billion. The average Latin America focused fund returned 5.9% in Q1 2007.

Assets in funds investing primarily in the U.S. increased 12.3% to $650.1 billion including $46.4 billion in new assets.

Eastern Europe focused fund assets decreased by 1.6% to $77.9 billion.

Total assets in long short equity strategies have shown no signs of slowing down. Long/short equity assets rose an estimated 8.5% to $712.1 billion in Q1 2007 including $30.9 in new assets. In the past year, total long/short equity assets rose $189.1 billion; $29 billion from performance gains and over $160 billion in new assets.

Distressed funds have returned an average of 13.5% in the last twelve months ending in March with one of the lowest correlations to broad equity markets. As a result the strategy attracted over $22.8 billion in new assets in Q1 2007 bringing total assets in the strategy to an estimated $173 billion an increase of 23.5% from Q4 2006.

Emerging market fund assets continued to increase at a double digit rate. Total assets in EM funds increased an estimated 15.3% in Q1 2007 to $244.6 billion, including $17.4 billion in new assets.

Convertible arbitrage funds began to attract asset in earnest again in Q1 2007. Total assets in convert funds increased an estimated 18.6% to $64 billion in Q1 2007 including $7.6 billion in new assets, the largest inflow since Q1 2004. Returns accounted for a quarter of the total asset increase and new allocations have been positive for four consecutive quarters.

Event driven fund assets continue to draw assets in Q1 2007 as levels increased an estimated 13.8% to $270 billion including $18.8 billion in new assets. Event driven and special situation funds have likely been cannibalizing assets from merger arbitrage strategies which saw an outflow of over $6 billion in Q1 2007, reducing the strategy's assets to $27.2 billion in Q1 2007, a drop of 14.8%.

HFN, a division of Channel Capital Group Inc., is a leading source for hedge fund news and information. Investors who meet HedgeFund.net's accreditation standards are eligible for access to an online database of more than 7,200 hedge funds, funds-of-funds and CTA/managed futures products.

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