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Hedge funds record inflows of USD 60 billion in Q1 2007, nearly 300 per cent gain over Q4 2006

The hedge fund industry saw record inflows of more than USD 60 billion during the first quarter of 2007, bringing total assets under management to USD 1.568 trillion, according to data released by Hedge Fund Research (HFR).

'After a relatively quiet end to what was still a record-breaking year in 2006, investors have begun pouring money into hedge funds at a pace we have never seen before., To put the first quarter inflow into perspective, during the first three months of 2007 as much new money was invested in hedge funds as was recorded during the last six months of 2006.' said Ken Heinz, president of HFR. 'The trend in asset flow suggests that both individual and institutional investors are actively allocating to hedge funds, while the performance indicates hedge funds are exceeding these investors' expectations.'

These new inflows represented an almost 300 per cent gain over 4Q 2006, when the industry recorded USD 15.7 billion in new fund flows, and was equal to nearly half the record USD 126 billion in new assets gathered by hedge funds in all of last year.

Two strategies dominated in attracting new investor dollars and accounted for more than half of all inflows. Equity Hedge led the way with a quarterly inflow of USD 20.4 billion while Relative Value Arbitrage took the second spot, recording an inflow of USD 10.3 billion. Every major strategy tracked by HFR recorded a positive flow for the quarter. Funds of funds saw net new flows of USD 8.0 billion in the first quarter, marking the fifth straight quarter of positive inflows for the category.

The HFRI Fund Weighted Composite Index returned 2.81 percent in the first quarter, with Emerging Markets up 5.06 percent, and Merger Arbitrage up 4.83 percent, as the top performing strategies. This compared to a return of 5.41 for the Fund Weighted Composite Index in 4Q 2006. During the first quarter of 2007, the S&P 500 returned 0.64 percent, while the MSCI World returned 2.06 percent.

Short Selling continued to struggle, posting its third consecutive quarter, and fifth out of the last six, with negative returns, losing 4.58 percent for the quarter. Market Timing also saw negative returns for the quarter, finishing with losses of 0.34 percent.

Other data of interest from the HFR quarterly report:

  • The USD 20.3 billion inflow into Equity Hedge represents the largest quarterly inflow that HFR has ever recorded for a single strategy.
  • Equity Hedge continues to hold its spot as the single largest strategy in terms of assets, with USD 442 billion, although during the first quarter Event-Driven and Relative Value Arbitrage strategies both crossed the USD 200 billion asset threshold.
  • Distressed saw positive flows of USD 7.5 Billion during the first quarter, representing an increase of 10.7 percent of total assets in the strategy. This follows an outflow of approximately USD 1.0 billion in Q4 2006. The strategy also returned 3.88 percent for the quarter.
  • There is now USD 684 billion invested globally in funds of funds. The first quarter flow figure (USD 8 billion) was well above the 4Q 2006 inflow of USD 3.89 billion, but still far off the Q3 2006 inflow of USD 23.9 billion. Fund of funds  performance was up nearly 3 percent in the first quarter, after recording a 10.4 percent gain in 2006.

HFR data is based on the more than 11,000 funds tracked historically by the firm which includes the over 6,500 funds reporting to the company as part of the HFR Database subscription product.

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