Hedge Fund Inflows Up As Returns Improve

by Carla Johnson, Investors Offshore.com

24 April 2006

Hedge funds attracted new money inflows of $24 billion in the first quarter of 2006 as strong returns increased the popularity of these alternative investments to global investors, according to Hedge Fund Research Inc.

The Chicago-based research group reported last week that the first quarter inflows reversed a small decline in the industry's assets at the end of last year, and total assets at the end of the first quarter stood at $1.18 trillion.

Funds of funds, which had net outflows in the fourth quarter, also generated inflows in the first quarter, as investors added $6.4 billion to the sector

The strong first quarter inflows have come in tandem with some of the healthiest returns for hedge funds in recent years. The HFRI Composite Index showed the average hedge fund up 5.85 percent in the quarter - the best quarterly return since the second quarter of 2003.

Equity hedge funds, with $359 billion in assets, had $8.1 billion of inflows in the first quarter. Event-driven strategies, with $163 billion in assets, had $2.1 billion of inflows.

On a percentage basis, fixed income: arbitrage was the biggest asset gainer with flows up 19.5 percent or $5.54 billion, to a total of $34.3 billion.

Emerging markets funds once again produced some of the best returns, and were up 9.43 percent for the quarter. Funds centring on Eastern Europe and the CIS were the best performers in this category, returning 15.23 percent, according to HFR.

Equity hedge funds returned 6.46 percent for the quarter, while event driven funds returned 6.2%, the data showed.

Short selling was the only strategy to have negative returns for the quarter, with the average fund down 3.07 percent.

Convertible arbitrage funds saw outflows again, losing 5.1% of their assets, despite generating average returns of 4.86% during the period.

HFR President Joshua Rosenberg observed that: "The strength of the global equity markets along with dynamic movements in commodities, energy and related securities created a favourable trading environment for a majority of hedge funds."

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