Hedge-Fund Deposits Declined 33% in Fourth Quarter

Date: Tuesday, January 15, 2008
Author: Tom Cahill

Hedge-fund inflows declined by 33 percent in the fourth quarter as subprime-mortgage losses caused some investors to delay new deposits, according to data compiled by Hedge Fund Research Inc.

Fund managers attracted $30.4 billion in the final three months of the year, compared with $45.2 billion in the third quarter, the Chicago-based research firm said today in an e- mailed statement. Investors put $15.8 billion of new cash into hedge funds in the year-earlier quarter.

Net deposits climbed 54 percent to a record $194.5 billion in the year as the average hedge fund returned 10.2 percent, almost double the gain by the Standard & Poor's 500 Index including dividends, Hedge Fund Research data show. The average fund return fell from 12.9 percent in 2006, giving some investors reason to reconsider where to put fresh money to work.

``You've seen investors pausing following the summer volatility,'' said Bruce Hamilton, an analyst at Morgan Stanley in London, who has an ``overweight'' recommendation on Man Group Plc, the largest publicly traded hedge-fund company. ``People need time for due diligence and redemptions in areas where performance was weak.''

Funds of hedge funds, which farm out clients' money to hedge-fund managers, attracted $11.3 billion in the fourth quarter and $59.2 billion in the year, Hedge Fund Research said. They returned 10 percent in 2007, in line with the year-earlier performance. Assets in funds-of-funds rose 22 percent to $798 billion in 2007.

Hedge funds, private investment pools catering to wealthy investors and institutions, managed $1.87 trillion as of Dec. 31, a 30 percent increase from a year earlier, Hedge Fund Research said.

Hedge-fund managers participate substantially in the profits from their speculation on whether the price of assets will rise or fall. They typically seek clients with at least $1 million to invest.

To contact the reporter on this story: Tom Cahill in London at tcahill@bloomberg.net .