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Hedge fund inflows hit USD58.7bn in Q2

The hedge fund industry continued to see near-record inflows of new money in the second quarter of 2007, adding USD58.7 billion in assets during the period, according to data released today by Hedge Fund Research (HFR), the leading source of hedge fund information and performance data.  This follows record inflows of USD60 billion in Q1, and brings overall industry assets to USD1.74 trillion.

Hedge fund strategies that experienced the largest capital inflows in 2Q include: Relative Value Arbitrage, which gathered USD16.4 billion in new assets; Equity Hedge, USD12.6 billion; and Event-Driven,USD9.48 billion.  Top-performing Emerging Markets funds saw an inflow of USD3.6 billion in the period, up from USD978 million in Q1 2007 and just USD711 million in Q2 2006.  Funds of Funds (FOF) raised USD17.4 billion in new assets in 2Q 2007, more than double the USD7.9 billion collected in Q1, bringing total FOF assets to a record USD745 billion.

Performance for the period remained strong, with the average hedge fund posting gains of 4.77 per cent, according to the HFRI Fund Weighted Composite Index. Emerging Markets was again the top performer, up 8.85 per cent for the period and 14.75 per cent year-to-date.  Following Emerging Markets was Equity Non-Hedge, up 7.35 percent in Q2, and Equity Hedge and Macro, both up 5.29 per cent in the period.

'We still see extremely strong flows to hedge funds, with Q2 '07 the second best quarter on record, trailing only last quarter,' said Kenneth H Heinz, president of Hedge Fund Research.  'Emerging Markets continues to be a strong performer, led by Asia.  The movement of assets into Event-Driven suggests that investors are anticipating that the market for corporate transactions will continue to create a conducive operating environment for hedge funds.'

In a quarter characterized by concerns about exposure to subprime mortgage credit and increasing interest rates, indices posted strong net gains. Relative Value Arbitrage, a strategy containing many multi-strategy credit funds, gained 3.2 per cent in Q2 and 6.53 per cent year to date.  Event-Driven and Distressed indices also posted gains.  

'Subprime mortgage exposure has not yet resulted in a generalized, systemic impact on indexes of credit-focused hedge funds or on the broader hedge fund universe. Specific instances of weakness are at least partially offset by the performance of funds which have minimized their exposure to subprime mortgage credit or, in some instances, maintained short exposure to many of these securities,' Heinz said.  'Strong trends in both the absolute level of yields as well as favorable movements in the slope of the yield
curve contributed to the performance of both fundamental and systematic macro strategies.'

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