Hedge Fund Assets Grow In Third Quarter

by Phillip Morton, Investors Offshore.com

15 November 2006

Total hedge fund asset levels increased 3.53% from $1.725 to $1.786 trillion during the third quarter of 2006, according to an estimate by HedgeFund.net.

At $51.5 billion, net new assets allocated to hedge funds increased less than in the previous two quarters, but the latest figures still represent the third highest inflow since the beginning of 2005, according to HedgeFund.net, which maintains a database of 7,000 hedge funds.

Performance gains added an additional $9.3 billion to total assets, while fund of fund assets increased 4.40% including $34 billion in new assets, to an estimated $901 billion.

Despite volatility and losses in the second quarter, hedge fund assets are continuing to grow at an annual rate of over 20%, the report shows. Meanwhile, increasing allocations in relative value and event driven strategies have carried over from the second quarter, and investors also continue to shift allocations outside of US based strategies, selecting funds with a global presence or into European focused funds for a regional focus, HedgeFund.net noted.

Convertible Arbitrage and Merger/Risk Arbitrage had the highest percentage increase in assets as a result of recent strong returns. Convertible arbitrage hedge fund assets increased 9.11% in Q3, an estimated $4 billion, to $47.95 billion, reflecting the recent high level of activity in global merger market. Merger/risk arbitrage hedge fund assets rose 9.73% in Q3, an estimated $4.44 billion, to $27.55 billion.

Global macro was the only major strategy which had a reduction in total assets during Q3. Global macro hedge fund assets fell 1.32%, an estimated $1.53 billion, to $114 billion.

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