Investors Flocked To Hedge Funds In Q2

by Carla Johnson, Investors Offshore.com

30 August 2007

Net hedge fund industry inflows during the second quarter of this year increased to USD41.1bn, the second highest quarterly inflow since the second quarter of 1994 (USD43.3bn) and almost double the USD20.8bn in inflows during the first quarter, according to the latest Lipper Tass Asset Flows report.

This represents growth of 3.42% in assets since March, and a performance gain of USD80.5bn pushed net hedge fund assets to an estimated USD1.67 trillion at the end of June. Buoyant global equity markets, the continued record pace of cross-border M&A activity, and still favourable credit markets were the key drivers of new hedge fund inflows, the report noted.

The Lipper Tass report revealed that the US sub-prime collapse came too late to affect the second quarter flows. However, it anticipated that the crisis will not have a negative effect on third quarter hedge fund inflows.

All strategies apart from global macro managed futures recorded net inflows. The largest inflows were experienced by the Long/Short equity strategies, which gained $14.9 billion, followed by event-driven funds and multi-strategy funds, which gained $12.2 billion and $6.1 billion during the period, respectively.

Net outflows for global macro and managed futures were $848 million and $687 million respectively. Curiously, in the case of the latter, these outflows coincided with strong returns during the quarter, with managed futures funds returning on average 12.67%. Global macro strategies were also positive in the second quarter, up by 4.79%.

Nevertheless, the quarter's strong overall inflows are perhaps reflective of solid returns across the hedge fund universe, as indicated by indices such as the Credit Suisse/Tremont Hedge Fund Index, which increased 5.19% by June 30, the report observed.

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