The hedge fund industry has attracted more than USD 100 billion in net assets for the first three quarters of the year, according to new research.
According to research compiled by Tremont Capital Management, Inc.'s TASS Research, net flows into hedge funds totaled USD 25.1 billion for the third quarter, although the pace of growth slowed from the first half of 2004. In the first and second quarter of 2004 hedge funds attracted USD 38.2 billion and USD 43.3 billion, respectively.
"The industry has experienced tremendous growth during the last few years as both institutional and high- net-worth investors have sought returns non-correlated to the broad markets," said Robert Schulman, co-CEO of Tremont Capital Management. "The third quarter flows are more in line with a growth pace that can be expected as the global pool of assets under management by hedge funds gets larger."
For the third quarter of 2004, hedge fund flows continued to favor the Global Macro, Fixed Income Arbitrage and Multi-Strategy categories. The three most popular strategies based on net inflows were Long/Short Equity, Event Driven and Global Macro. In order, the categories received net inflows of USD 6.9 billion, USD 4.6 billion and USD 4.2 billion, and accounted for more than half of the quarterly net asset flow. The three strategies also were the most popular for all of 2003.
"The third quarter asset inflows favored strategies with broad investment latitude," said Schulman. "The rapid growth of the industry over the past few quarters has led to a shortage of managers in certain styles, such as Equity Market Neutral, thus leading to continued growth in strategies with less capacity constraints."
Schulman indicated strategies such as Global Macro now make up a greater percentage of the industry assets because these managers can typically deploy large amounts of assets. He also cited Convertible Arbitrage as a strategy that experienced net outflows during the quarter owing to lacklustre performance.
Background Note: The TASS Research quarterly analysis of hedge fund flows is based on a comprehensive analysis of approximately USD 615.4 billion in hedge fund assets. The universe represents a broad array of managers and funds based in the U.S. and overseas. TASS Research currently estimates the global industry's asset base at approximately USD 890 billion, with an additional USD 265 billion estimated to be in privately managed accounts.