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Hedge fund flows fall by USD 824 million in Q4 2005

Hedge funds recorded their first quarterly decline in new asset flows in over 10 years, with a USD824m outflow in Q4 2005, according to Hedge Fund Research.

 'With performance off in October, asset gathering had a slow start in the fourth quarter and never fully caught up,' said Joshua Rosenberg, president of HFR.  'Funds of funds continued to lose assets as well, although it appears that at least a portion of that money found its way into Equity Hedge or Event-Driven funds.'

For the year, hedge funds brought in just under USD 47 billion in net new assets, bringing the industry total to USD 1.105 trillion, according to the latest data from Chicago-based HFR. This compared to nearly USD 73.6 billion in net new flows and USD 972.6 billion in total assets in 2004, and USD 70.6 billion in new money and USD 820 billion in total assets in 2003.

Funds of funds saw net outflows of USD 2.1 billion, the second consecutive quarter of outflows for the category.  For the year, funds of funds brought in USD 9.5 billion in net new assets compared to USD 33 billion in 2004 and USD 59.4 billion in 2003.  There is USD 395 billion invested in funds of funds globally, according to HFR.  Fund of fund performance was up 2.05 per cent in the fourth quarter, and 7.33 per cent for the year according to the HFRI Fund of Funds Composite Index. 

The HFRI Composite Index returned 9.35 per cent for all of 2005, including 2.13 per cent in the fourth quarter.  The Emerging Markets strategy was a top performer for both the fourth quarter and the year, up 4.23 per cent for the quarter and 20.9 per cent for all of 2005.

Equity Hedge, the largest single strategy with USD 332 billion in assets, was up 2.61 per cent in the fourth quarter and 10.66 per cent for the year. Convertible Arbitrage turned in its second consecutive quarter of positive performance, up 0.83 per cent. For the year, however, the strategy was down 1.94 per cent - the only strategy to post negative returns in 2005.

Other data of interest from the HFR quarterly report:

• On a percentage basis, Fixed Income: High Yield saw the biggest increase in assets flows for the year, up 30 per cent to USD 8.7 billion in total assets.
• Convertible Arbitrage funds continued to lose assets, with an outflow for the year of USD 7.67 billion.  Assets in the category shrunk to USD 36.7 billion at the end of 2005 from USD 44.7 billion in 2004.
• Sector: Energy funds fell by -0.04 per cent in the fourth quarter, but were up 23.48 per cent on the year.  Assets in the category grew by 121.8 per cent in 2005 to USD 10.58 billion.  
• Equity Hedge and Event-Driven werefar and away the biggest asset gatherers in dollar terms, collecting USD 13.65 billion and USD 13.74 billion in new assets respectively.  
• Equity Hedge remains the single biggest strategy, with USD 332 billion in assets, followed by Event-Driven with USD 152.2 billion and Relative Value Arbitrage with USD 130.4 billion.
Background Note: HFR data is based on the more than 9,000 funds tracked historically by the firm which includes the over 5,300 funds reporting to the company as part of the HFR Database subscription product.

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