Hedge Fund Flows Remained Buoyant In 2004

by Phillip Morton, Investors Offshore.com

01 February 2005

Figures released by Hedge Fund Research have revealed that hedge funds attracted $73.6 billion in net inflows during 2004, growing by just over 18% to $972.6 billion in assets under management.

While the report shows that the pace of growth was down on the $75 billion inflows and 31% total asset growth witnessed in 2003, hedge funds nevertheless finished 2004 on a high note following disappointing returns earlier in the year.

According to HFR, this is borne out by an impressive $79.6 billion expansion of assets and $26.9 billion inflows in the fourth quarter of 2004 - the largest quarterly expansion yet seen.

Among the more popular strategies last year were Event Driven, which grew by 28% in 2004 and ended the year with $128.6 billion; Distressed Securities, which attracted $6.6 billion in new funds, reversing an $8.8 billion outflow in 2003; the multi-strategy Relative Value category, which attracted $11.3 billion in new capital in 2004; and the $285.9 billion Equity Hedge category which grew by 18% over the course of the year, and remains by far the largest category.

The Fund of Funds sector expanded by 22% in assets under management over the course of the year while the Macro Fund category, which totals $107.4 billion in assets, picked up inflows of only $5.4 billion over the year, a sharp decline from the $28.5 billion inflow seen in 2003.

Two categories, Merger Arbitrage and Market Timing, saw net outflows in 2004.

Joshua Rosenberg, President of HFR, noted: “Apart from the more than $148 billion increase in assets under management from year end 2003, the big story in hedge funds in 2004 may be the growth in popularity of multi-strategy funds,”

He went on to observe: "At a time when diversification is increasingly sought by investors, it is not surprising that Relative Value Arbitrage and Event Driven funds, which employ a greater range of investing tools than typical single strategy-focused funds, collectively attracted nearly $22 billion in new money in 2004.”

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