Hedge Fund Assets Top $1 Trillion, Says HFR

by Phillip Morton, Investors Offshore.com

29 April 2005

Hedge fund inflows are continuing at a frenzied pace, with the latest quarterly data from Hedge Fund Research showing that $27.35 billion in new assets were placed in hedge funds during the first quarter of 2005, bringing total hedge fund assets to over $1 trillion.

According to HFR, the Event-Driven category attracted the most assets in the first quarter, taking in $5.9 billion. This was followed by Relative Value Arbitrage, with $4.6 billion in new assets, and Equity Hedge, with $4.2 billion.

Convertible Arbitrage was the only major strategy to see negative fund flows in the quarter, losing just under $1 billion.

Performance-wise, hedge funds posted a moderate gain during the first three months of the year, gaining on average 0.88%, HFR stated. This compared to a loss of 2.15% for the S&P 500 Index and a decline of 1.55% for the MSCI World Index over the first quarter.

“This recent milestone of $1 trillion in industry assets is further evidence that hedge funds continue to appeal to those investors seeking diversified returns without correlation to equity and bond markets,” observed Joshua Rosenberg, president of HFR.

“The first quarter again demonstrated the advantage of this approach, with hedge funds in the aggregate outperforming the major market indices,” he added.

The downturn in equity markets ensured that Short Selling strategies were a leading performer during the quarter, gaining 6.15%. This compared to a loss of 3.79% in 2004. This was accompanied by an increase in inflows to Short Selling strategies to $208 million in the quarter, up from just $58 million in the final quarter of 2004.

However, energy funds posted the single best performance for the quarter, gaining 6.27% after posting a strong 35.8% return for 2004. Emerging Markets were also a notable performer in the first quarter, returning 3.64%. Convertible Arbitrage was the worst performing strategy, down 2.80% for the period.

Funds of Funds drew in $9.4 billion in new asset flows during the first quarter, bringing total assets in the category to $371 billion - approximately one-third of all hedge fund assets.

“With the markets still influenced by choppy trading and a lack of direction, investors have been directing assets to those strategies that offer more diversification and downside protection,” added Rosenberg.

“The interest in Event Driven and Relative Value strategies appears to reflect the general view that now is not the time to be taking on additional market risk," he noted.

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