Net hedge fund industry inflows during the second quarter of this year increased to USD41.1bn, representing growth of 3.42 per cent in assets since March, and a performance gain of USD80.5bn pushed net hedge fund assets to an estimated USD1.67 trillion at the end of June, according to the latest Lipper Tass Asset Flows report.
This marked the second highest quarterly inflow since the second quarter of 1994 (USD43.3bn) and almost double the USD20.8bn in inflows during the first quarter. On a rolling 12-month basis, inflows reached USD102bn, a sharp increase from the figure of USD74.3bn for the 12 months to June 2006 and close to the record-setting 2006 calendar year figure of USD106.1bn. For the first six months of 2007, inflows reached USD61.9bn compared with USD65.9bn for the same period of last year.
All strategies apart from global macro managed futures recorded net inflows. Gains were led by long/short equity and event-driven, which accounted for two-thirds of total inflows in the second quarter compared with three-quarters of the total in the previous three months, indicating that hedge fund inflows were slightly more dispersed this time around.
In US dollar terms, long/short equity saw net inflows of USD14.9bn, event-driven of USD12.2bn and multi-strategy of USD6.1bn. As a percentage of assets under management, the highest quarterly growth rates were 5.46 per cent for emerging markets, 4.67 per cent for event-driven and 3.97 per cent for long/short equity.
Net outflows were experienced of USD848m for global macro and USD687m for managed futures, representing declines of 0.78 and 1.34 per cent respectively. According to Lipper Tass, these outflows continued a trend of falling inflows for these strategies over the previous three quarters, and in fact followed a quarter during which managed futures performance was among the strongest in history.
The drivers for this phenomenal inflow growth came from buoyant global equity markets, the continued record pace of cross-border M&A activity and still favourable - albeit stretched - credit market activity, the report says, while trend-following strategies also fared particularly well across various classes. Investors continued to allocate to strategies that might afford solid returns, uncorrelated to the major market benchmarks.
'Curiously, inflows did not follow performance this quarter for managed futures and global macro as the former returned 12.67 per cent and the latter 4.79 per cent,' the report noted. 'By contrast, those strategies that continued to gain inflows - emerging markets, event- driven and long/short equity - returned 5.91, 5.57 and 5.72 per cent respectively.'
The second quarter saw relatively strong performance across hedge funds as a whole. The Credit Suisse/Tremont Hedge Fund Index returned 5.19 per cent, marking the sixth time in 18 quarters that performance exceeded 5 per cent. The broad hedge fund index lagged the S&P 500, which returned 6.28 per cent, and the MSCI World TR (USD), which returned 6.71 per cent, although it comfortably outperformed the JP Morgan Global Government Bond Index, which declined by 1.72 per cent.