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Hedge fund industry assets top USD 1 trillion

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The hedge fund industry reached a significant new milestone in the first quarter of 2005, topping USD 1 trillion in total assets for the first time, according to HFR.

The hedge fund industry reached a significant new milestone in the first quarter of 2005, topping USD 1 trillion in total assets for the first time, according to HFR.

“This recent milestone of USD 1 trillion in industry assets is further evidence that hedge funds continue to appeal to those investors seeking diversified returns without correlation to equity and bond markets,” said Joshua Rosenberg, president of Chicago-based Hedge Fund Research (HFR). “The first quarter again demonstrated the advantage of this approach, with hedge funds in the aggregate outperforming the major market indices.”

Total hedge fund assets were USD 1.006 trillion on March 31, 2005, including new fund flows of USD 27.35 billion in the first quarter of the year.

The Event-Driven category led the way in gathering new assets, taking in USD 5.9 billion in the quarter.

This was followed by Relative Value Arbitrage, with USD 4.6 billion in new assets, and Equity Hedge, with USD 4.2 billion. Convertible Arbitrage was the only major strategy to see negative fund flows in the quarter, losing just under USD 1 billion.

Overall, hedge funds posted a modest gain of 0.88 percent for 1Q 2005, according to HFR, compared to a loss of -2.15 percent for the Standard & Poor’s 500 Index and a loss of -1.55 for the MSCI World Index during the same period.

Short sellers, Energy-focused, and Emerging Markets funds see strong performance

With the downturn in equity markets, Short Selling strategies were predictably a leading performer during the quarter, up 6.15 percent. This compared to a loss of -3.79 percent in 2004. Short Selling strategies also saw inflows of USD 208 million in the quarter, up from just USD 58 million in 4Q 2004.

Energy funds posted the single best performance for the quarter, up 6.27 percent. This was on top of the already strong 35.8 percent returns for 2004. Emerging Markets funds provided the third-best returns during 1Q 2005, up 3.64 percent. Convertible Arbitrage was the worst performing strategy, down -2.80 percent for the quarter.

Funds of Funds saw USD 9.4 billion in new asset flows in 1Q 2005, bringing total assets in the category to USD 371 billion, accounting for roughly one-third of all hedge fund assets.

“With the markets still influenced by choppy trading and a lack of direction, investors have been directing assets to those strategies that offer more diversification and downside protection,” said Rosenberg. “The interest in Event Driven and Relative Value strategies appears to reflect the general view that now is not the time to be taking on additional market risk.”

Other data of interest from the HFR quarterly report:

The top three categories in terms of assets under management are Equity Hedge, with USD 291.5 billion; Event-Driven, with USD 135.8 billion; and Relative Value Arbitrage, with USD 127 billion.

Emerging Markets attracted USD 2.14 billion in new assets in the quarter as investors sought to both take advantage of the sector’s performance and diversify away from U.S. assets.  Energy funds brought in USD 1.1 billion in new assets, more than double the total for all of 2004, reflecting strength in the sector.

Macro Funds, which make leveraged bets on anticipated price movements of stock markets, interest rates, foreign exchange and physical commodities, brought in USD 3.25 billion in new assets, fourth among all strategies, and returned 1.02 percent for the quarter.  This represented almost four times the USD 753 million taken in by Macros Funds in 4Q 2004.

Technology funds continued to see significant outflows, losing USD 953 million in the quarter, on top of a loss of USD 1.43 billion for 2004.

Merger Arbitrage attracted USD 302 million in the quarter, reversing negative flows of -USD 203 million in 4Q 2004 and -USD 342 million in Q3 2004.

Among the percentage leaders in attracting new assets during 1Q 2005 were Real Estate, up 11.4 percent to USD 255 million; Emerging Markets: Asia, up 8.77 percent to USD 399 million; and Healthcare/Biotechnology, up 7.75 percent to USD 406 million.

Background Note: The HFR 1st Quarter ’05 Industry Report contains more than 140 pages of charts and graphs provided in both PowerPoint and Adobe Acrobat formats. For more information on the Report or on HFRI Indices, simply click on the HFR links on

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