Hedge Funds Attracted $19 Billion New Money Last Quarter, Most Since 2007

Date: Wednesday, October 20, 2010
Author: Kelly Bit, Bloomberg

Hedge funds attracted a net $19 billion of new capital in the third quarter, the most since the end of 2007, as they returned to their peak asset value before the financial crisis.

Relative value funds and macro funds pulled in the most, with net deposits of almost $7 billion each, Chicago-based Hedge Fund Research Inc. said today in an e-mailed statement. Relative value funds aim to profit from a pricing discrepancy in the relationship between multiple securities, while macro funds seek to profit from global themes or trends.

Hedge funds returned an average of 5.2 percent in the quarter, bringing net asset values to a record high and erasing the losses during the financial crisis. Including new deposits, industry assets rose by $120 billion to $1.77 trillion, the biggest quarterly increase in more than three years.

“The emerging from the drawdown is a milestone,” Ken Heinz, president of HFR, said in a telephone interview. “It’s taken three years to fully recover from that.”

The third-quarter gains in the HFRI Fund Weighted Composite Index, which tracks more than 2,200 hedge funds, helped hedge funds emerge from a decline of more than 21 percent in 2008 and early 2009, the worst drawdown in history, HFR said.

Hedge fund managers can’t charge performance fees, usually 20 percent of profits, as long as their funds are below their previous high-water mark.

September Rally

Funds were helped by an 8.8 percent gain in the Standard & Poor’s 500 Index last month, the best September performance for the U.S. equity benchmark in 71 years. Equity hedge funds advanced 5.9 percent in the third quarter.

Even so, investors still shied away from stocks, pulling a net $600 million from equity hedge funds.

Event-driven funds, whose managers try to capitalize on company events such as mergers, spinoffs and earnings reports, and relative value funds have gained the most of all strategies this year, up 6.7 percent and 8.1 percent, respectively. Event- driven funds attracted $5.7 billion last quarter.

Funds of hedge funds, which invest in other hedge funds, attracted $250 million in new money, the second quarter in the last nine in which clients added assets.

To contact the reporter on this story: Kelly Bit in New York at kbit@bloomberg.net

To contact the editor responsible for this story: Christian Baumgaertel at cbaumgaertel@bloomberg.net