Tremont Records Net Asset Outflow From Hedge Funds In Q4 2005

by Phillip Morton, Investors Offshore.com

10 February 2006

Despite an improvement in the performance of hedge funds in the latter half of 2005, the latest flow data compiled by Tremont Capital Management has shown that there was a net outflow of assets from hedge funds in the final quarter of 2005.

According to Tremont's Asset Flow Report for the Fourth Quarter of 2005, there was a $4.3 billion net outflow from hedge funds in the final three months of the year as mixed performance from some trading strategies dampened investor demand.

However, global macro and emerging markets strategies continued to draw in new assets. Global Macro hedge funds, for example, bounced back from a 1.44% outflow in the previous quarter to gain assets at a 1.77% rate. These strategies also attracted the greatest amount of net assets in absolute terms, showing inflows of $1.2 billion and $600 million respectively.

Investments in Event Driven, Long/Short Equity, Managed Futures and Multi Strategy strategies remained steady, gaining/losing assets at a rate of less than 1% last quarter.

Convertible Arbitrage and Equity Market Neutral funds continued to struggle, losing assets at a rate of 7.95% and 4.68%, respectively.

However, Robert Schulman, Chief Executive Officer of Tremont Capital Management, believes that one should not read too much into the fourth quarter asset flows, and he observed that they reflect a pattern of annual rebalancing in hedge fund portfolios.

"When you look at fourth quarter results for each of the last twelve years eleven of those quarters were followed by larger flows in the following first quarter," Mr Schulman noted.

"This is characteristic in the hedge fund industry where, in the rebalancing process of redemptions and subscriptions, the subscription component is not reported until the first day of the following quarter," he added.

The quarterly Tremont Asset Flows Report is based on an asset base of approximately $813 billion in hedge fund assets, representing a broad array of managers and funds located in the US and overseas.

Tremont currently estimates the global industry's assets to be approximately $1.06 trillion.

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