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:
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.