Net Hedge Fund Inflows Stabilize in Third Quarter

by Phillip Morton, Investors Offshore.com

04 November 2005

The third quarter of 2005 showed the stabilization of net inflows to the industry as a result of improved performance, according to a report by hedge fund research and money management firm Tremont.

Tremont's Asset Flows Report showed that Emerging Market hedge funds gained assets at a 7.8% rate as investors increased allocations to this top performing sector.

Convertible Arbitrage, although continuing to trail with outflows of 5.5% of assets during the quarter, showed improvement over the 9.2% outflow it suffered during the previous quarter, as fundamental factors improved and some funds in the strategy saw net inflows.

"While investors' overall interest in hedge funds is regaining momentum, it's growing at a slower rate than the long term average quarterly growth rate of 2.7%," observed Robert Schulman, CEO of Tremont Capital Management.

The strategies that attracted the greatest amount of net assets in absolute terms during the third quarter were Long/Short Equity, Event Driven and Emerging Markets strategies, showing inflows of $5.6 billion, $3.9 billion and $2.9 billion, respectively.

Schulman believes that the expertise and flexibility of the Long/Short Equity manager is attractive to investors concerned about the instability of the current markets. Likewise, that sense of caution has led investors back to strategies usually shown to work in challenging markets such as Event Driven and Multi-Strategy.

Regarding the gains in Emerging Markets, Schulman attributes them to the success of markets in Eastern Europe and parts of Asia and Latin America -- including China and Brazil.

The quarterly Tremont Asset Flows Report is based on an asset base of approximately $800 billion in hedge fund assets. The universe represents a broad array of managers and funds located in the US and overseas. Tremont currently estimates the global industry's assets to be at approximately $1.05 trillion.

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