According to a recent survey conducted by LJH and Reuters, hedge fund investors preferred to place their money into more conservative strategies in the first quarter of 2004 as economic uncertainty and market turbulence hit fund performance.
As a result, the poll revealed that funds of funds, which invest across a basket of hedge funds in order to spread potential risk, provided the biggest inflows to the alternative sector in the first three months as they channelled in $798.4 million, topping the $708.43 million invested by high net worth individuals, traditionally the largest source of hedge fund assets.
In response to growing interest from large institutional investors such as pension funds, the survey discovered that the hedge fund industry is also developing safer investments designed to minimise volatility and potential losses. Perhaps the highest profile pension fund participating in the hedge arena is the Californian Public Employees fund Calpers, which has a massive $166 billion under management.
Whilst average hedge fund performance has been a relatively modest 2.54% in the first quarter of the year according to data released by Hennessee, alternative investments have still managed to outperform equity indices, which have suffered at the hand of investor uncertainty brought about by tensions in Iraq and economic uncertainty.
It is unsurprising therefore that the most popular form of hedge fund in the first quarter has been equity funds, which are able to make profitable bets on whether markets rise or fall. The LJH/Reuters survey found that equity hedge funds attracted $724.91 billion in the first three months.
The poll, which compiled responses from 63 international hedge funds companies, also found that $221.31 million was put into fixed income arbitrage strategies in Q1, showing a dip in interest from the previous year, and $153.07 million added to global macro strategies.
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