Net inflows into hedge funds totalled USD20.7bn during the first quarter of 2007, and with a performance gain of USD49.9bn resulted in net hedge fund assets totalling an estimated USD1.51t
Net inflows into hedge funds totalled USD20.7bn during the first quarter of 2007, and with a performance gain of USD49.9bn resulted in net hedge fund assets totalling an estimated USD1.51trn at the end of March, according to the latest Lipper TASS Asset Flows Report.
The pace of first quarter inflows increased by 52 per cent over the last three months of 2006, according to the report, while on a rolling 12-month basis net inflows amounted to USD99.3bn, just below the record-setting calendar year 2006 figure of USD106.1bn.
As in the final quarter of last year, net outflows during first quarter 2007 were experienced by the global macro, fixed income arbitrage and managed futures strategies. The quarterly rate of outflows increased from 1.31 to 1.91 per cent but was still well below the 2.72 per cent quarterly average pace experienced since 1994.
Measured in US dollar terms, the biggest inflows were enjoyed by event-driven (USD9.4bn), long/short equity (USD6.3bn) and multi-strategy (USD3.9bn) funds. As a proportion of assets under management the quarterly growth rates for the strategies were 4.01 per cent, 1.85 per cent, and 2.83 per cent respectively.
According to the report, much of the growth in hedge fund inflows continued to be driven by record highs in most global equity markets, led by healthy corporate earnings reports, record merger and acquisition activity and deal flow supported by private equity and leveraged buy-out activity, a continuation of the carry trade, and tightening credit spreads, as well as a spike in implied volatility.
Inflows continued to follow performance across a number of hedge fund sub-strategies. For example, the Credit Suisse/Tremont Event Driven Index returned 4.96 per cent for the first quarter, the Long/Short Equity Index returned 3.77 per cent, and the Multi-Strategy Index returned 3.76 per cent.
The net inflow of USD20.8bn into hedge funds during the first quarter represented a 1.91 per cent increase in assets over the three months and compared with USD13.6bn of net inflows in the previous quarter. The rolling 12-month inflows of USD99.3bn compared with USD47.5bn a year earlier.
The growth in assets of 4.01 per cent for event-driven strategies compared with 3.7 per cent the previous quarter, 1.3 per cent in first quarter of 2006, and a quarterly average rate of 3.9 per cent. The report says event-driven strategies have continued to demonstrate decent asset growth since the third quarter of 2006, with special situations benefiting from strong equity markets with exposure to themes such as exchanges, utilities, energy, and mining. Buy-out activity was also strong, while credit and distressed did well as credit spreads tightened slightly over the quarter.
By contrast, the decline in inflows for global macro funds follows a 2.4 per cent decline over the previous quarter, but compared with a positive inflow of 4.0 per cent during the first quarter 2006, with a quarterly average of minus 0.1 per cent. As for managed futures, global macro with a systematic trading approach (often termed trend followers) suffered from sharp reversals in stock indices, fixed income, and currencies. In contrast, shorter-term mean reversion strategies did relatively well, while the Japan carry trade remained popular. Emerging markets had a below-average-performance quarter.