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Investors pour $194.5 bln into hedge funds in 2007

Date: Wednesday, January 16, 2008
Author: Dane Hamilton, Reuters

The hedge fund industry continued to grow in 2007, attracting a record $194.5 billion in new money last year, although the pace slowed in the fourth quarter, new data released on Tuesday showed.

Inflows in 2007 were 54 percent higher than the $126.5 billion the industry attracted in 2006, bringing total assets to $1.87 trillion in more than 10,000 funds, according to industry tracker Hedge Fund Research.

However, the industry attracted only $30.4 billion in the fourth quarter of 2007, well below the first three quarters, suggesting that investor demand for the asset class may have cooled with heightened market volatility of the last six months.

Hedge funds, which ballooned from some $40 billion in 610 funds in 1990, offer the promise of returns relatively uncorrelated to markets by both holding and shorting securities, as well as using leverage and derivatives in an array of different strategies.

Last year, hedge funds overall delivered returns of 1.37 percent for December and 10.24 percent for the year, HFR said. Other index providers showed similar results, although the data are only indicative of the industry, since many hedge funds don't report their results to the research groups.

Relative value arbitrage, which bets on correlations between different securities, and event-driven strategies, which bet on prospects for corporate events, were the most successful in attracting new money in the fourth quarter, gaining $9.9 billion and $5.3 billion respectively, HFR said.

Funds of funds, which are funds that invest in hedge funds, brought in $59.2 billion in 2007, up from $49.7 in 2006. Funds of funds, which now hold nearly $800 billion, were up 1.85 percent in the fourth quarter and up 10.12 percent for the year, said HFR. (Reporting by Dane Hamilton. Editing by Dave Zimmerman)