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Investor inflows drive USD120bn increase in hedge fund assets

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Hedge funds recorded the largest quarterly asset jump in over three years, with total industry capital increasing by USD120bn in quarter three 2010, according to data released by Hedge Fund Research, a provider of hedge fund industry data. 

The capital increase reflects a combination of both performance-based gains and new capital inflows, bringing total assets invested in the hedge fund industry to USD1.77trn as of 3Q10.

The HFRI Fund Weighted Composite Index posted a gain of 5.17 per cent in the third quarter, bringing the cumulative net asset value of the broad-based index to exceed the previous record level set in October 2007.

After three years, the industry has emerged from the worst cumulative performance drawdown in its history, which had exceeded -21.4 per cent through the volatility of the financial crisis.

Investors allocated a net USD19bn of new capital to the hedge fund industry in the third quarter, the largest quarterly capital inflow since the fourth quarter of 2007.

Relative value and macro strategies each experienced inflows of nearly USD7bn, while event driven funds saw inflows of USD5.7bn.

Despite a 3Q performance gain of 5.9 per cent, equity hedge strategies experienced a net outflow of nearly USD600m.

Relative value arbitrage and event driven funds have been the strongest areas of performance YTD through 3Q, with gains of 8.1 and 6.7 per cent, respectively.

Funds of hedge funds experienced a narrowly positive net inflow of USD250m, only the second quarter in the last nine in which they experienced a net capital inflow. This capital inflow combined with a 3Q performance gain of 3.25 per cent brings total funds of hedge funds AUM to just over USD600bn.

“With the recent performance gains, the hedge fund industry has clearly passed a significant milestone in its evolutionary history,” says Kenneth J. Heinz, president of Hedge Fund Research. “In the last three years, hedge funds have become more strategically diverse, structurally accessible and transparent to investors, and, as a result, the industry is well-positioned for continued strong growth in coming quarters.”

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