Digital Assets Report

Newsletter

Like this article?

Sign up to our free newsletter

Hedge fund inflows set another record in 2007, says HFR

Related Topics

The hedge fund industry attracted a record USD194.5bn in new investor capital in 2007, bringing total assets under management to USD1.87trn, according to Chicago-based Hedge Fund Research.

The hedge fund industry attracted a record USD194.5bn in new investor capital in 2007, bringing total assets under management to USD1.87trn, according to Chicago-based Hedge Fund Research.

Inflows for the year outpaced last year’s USD126.5bn, the previous full-year record, and represent a 54 per cent year-on-year increase. However, the fourth quarter inflow of USD30.4bn was well below the pace set in the first three quarters of the year, making 2007 the third consecutive year to end with a fourth quarter drop in the rate of new capital coming into the industry.

The HFRI Fund Weighted Composite Index returned 1.37 per cent in the fourth quarter and 10.24 per cent for the year. For the third year running, the HFRI Emerging Markets Index was the top performer on an annual basis, adding 3.89 per cent in the fourth quarter, and returning 25.03 per cent for the year. Short selling led all strategies for the quarter, returning 5.94 per cent, but was up just 3.98 per cent for all of 2007.

Relative value arbitrage and event-driven attracted the most new assets in the fourth quarter, bringing in USD9.9bn and USD5.3bn respectively. For the year, relative value arbitrage brought in the most new assets, totalling USD45.9bn. Equity hedge was next with USD41.5bn, although the strategy attracted just USD14m in inflows in the fourth quarter.

Funds of funds saw net new inflows of USD11.3bn in the fourth quarter and USD59.2bn for the year, compared with USD49.7bn in net new assets in 2006 and USD9.5bn in 2005. Globally, USD798.6bn is invested in funds of funds, according to HFR, with total assets invested in the category increasing by almost 22 per cent in the past year. Fund of funds performance was up 1.85 per cent in the fourth quarter of 2007, and 10.12 per cent for the year, according to the HFRI Fund of Funds Composite Index.

‘It was another record year for hedge funds when it came to attracting new assets in spite of the slower pace in the fourth quarter,’ says HFR president Kenneth J. Heinz, who notes that there are now more than 10,000 hedge funds in the industry. ‘The trend in strategy allocations suggests investors are not chasing the best performers, and are anticipating continued opportunities in arbitrage and event-driven.’

The HFR quarterly report also revealed that equity hedge continues to be by far the single largest strategy in terms of assets, with USD507bn, followed by relative value arbitrage at USD273bn, and event-driven with USD244bn. Event-driven had been the second largest strategy at the end of 2006, while relative value arbitrage held third position.

The number of hedge funds investing in Asia is now greater than 10 per cent of overall funds, although more capital is invested in funds with a European focus. Emerging markets remained the top-performing strategy due in large part to results from Asia as well as from Eastern Europe.

For 2007, HFR’s Emerging Markets: Asia and Emerging Markets: Eastern Europe/CIS indices returned 34.98 per cent and 24.25 per cent respectively. Macro posted a strong gain as financial market volatility increased, returning 3.89 per cent in the fourth quarter and 11.73 per cent for the year.

Three strategies recorded outflows during the fourth quarter. Equity non-hedge posted an outflow of USD702m, while market timing and convertible bonds posted small fourth-quarter outflows, but no strategies experienced net outflows for the year.

HFR’s data is based on more than 11,000 funds tracked historically by the firm, including more than 7,000 funds reporting to the company as part of the HFR Database. Founded in 1993, HFR is active in hedge fund data, research, indexation and asset management through group companies include Hedge Fund Research and HFR Asset Management. HFR also distributes the HFRI Monthly Performance Indices as benchmarks for the industry.

Like this article? Sign up to our free newsletter

Most Popular

Further Reading

Featured