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Hedge funds experience largest net asset flow since 2007

Date: Thursday, December 9, 2010
Author: Margie Lindsay, Hedge Funds Review

Hedge funds recorded the largest quarterly asset jump in over three years with industry capital increasing by $120 billion in the third quarter, boosted by performance and new money.

Investors allocated a net $19 billion of new capital to the hedge fund industry in the third quarter, the largest quarterly capital inflow since the fourth quarter of 2007.

The increase reflected good performance-based gains as well as capital inflows, bringing total assets invested in the hedge fund industry to $1.77 trillion, according to data from Hedge Fund Research.

Capital inflows were the strongest since the last quarter of 2007. The industry seems on target to hit $2 trillion in the first half of 2011.

Relative value and macro strategies attracted the most money. Each experienced inflows of nearly $7 billion. Event driven funds had inflows of $5.7 billion.

Relative value arbitrage (up 8.1%) and event driven (6.7%) funds have been the strongest areas of performance year to date.

Despite a third-quarter performance gain of 5.9%, equity hedge strategies experienced a net outflow of nearly $600 million.

Funds of hedge funds (FoHFs) experienced a small positive net inflow of $250 million. This is only the second quarter in the last nine in which FoHFs have had a net capital inflow.

This capital inflow combined with a third-quarter performance gain of 3.25% brings total FoHF assets under management to just over $600 billion.

After three years, the industry has emerged from the worst cumulative performance drawdown in its history, a negative 21.4% due to the financial crisis.

Performance overall was strong in the third quarter with the HFRI Fund Weighted Composite Index posting a gain of 5.17%. This brings the cumulative net asset value (NAV) of the broad-based index over the previous record level set in October 2007.

“With the recent performance gains, the hedge fund industry has clearly passed a significant milestone in its evolutionary history,” said Kenneth Heinz, president of Hedge Fund Research.

“In the last three years hedge funds have become more strategically diverse, structurally accessible and transparent to investors and as a result the industry is well-positioned for continued strong growth in coming quarters,” he added.