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TASS Reports Net Inflow Record

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NEW YORK (–Hedge funds saw a record net inflow of US$13.83 billion in the second quarter of 2003, according to TASS Research,* moving net asset flows by mid year past the net inflow of US$16.28 billion in 2002.

Most investors seemed to be following the best performing strategies of the past 12 months, which were convertible arbitrage, global macro and managed futures. Convertible arbitrage funds saw US$2.68 billion in new assets, while global macro managers reported US$2.48 billion, and managed futures saw US$2.28 billion in steady inflows.

Both global macro managers and managed futures managers had the best inflows of the first quarter, as well Previous HedgeWorld Story. The negative economic environment and weakening dollar were thought to be boosting both strategies, but in the last month the tide may be turning against such strategies, with convertible managers and managed futures posting negative returns in July and with global macro managers slightly down also Previous HedgeWorld Story.

“I believe the strong asset flows showing this year demonstrates the fact that institutions are embracing hedge funds as an asset class,” said Robert Schulman, co-chief executive of Tremont Capital Management Inc., Rye N.Y. “Many large investors have been tracking the industry for some time and are now making allocations. Tremont believes we are in the early stages of this trend.”

According to Tremont, US$1.7 billion of the net flows to the hedge fund industry were directed at new funds. At the same time, the rate at which funds were returned to investors slowed. In the first quarter, Tremont said that US$2.11 billion in net assets were returned, as compared to US$1.05 billion in the second quarter. Officials said in a statement that the slow down was due to the number of hedge funds closing due to performance problems.

In the second quarter, the only category showing a net loss of assets was dedicated short bias, which had an outflow of US$64.4 million. This year hasn’t been kind to dedicated short-bias managers, who were down 2.06% in July and who has lost 21.14% for the year through July 31, according to the CSFB/Tremont Hedge Fund Index.

The TASS Research report looks at hedge fund flows from its database that covers just under US$400 billion in assets. A smaller survey conducted by LJH Global Investments, Naples, Fla., and Reuters of 64 hedge funds yielded a much different picture of the hedge fund industry.

They found that international investors cut allocations to hedge funds by 14% to US$1.2 billion between April and June and more than doubled the investments in the safest alternative strategies. Overall, the survey results show a slow down from the first quarter when US$1.4 billion flowed into hedge funds Previous HedgeWorld Story.

The LJH survey also revealed that most of the money going into hedge funds came from institutional investors, who contributed US$480 million compared to US$353 million in the first quarter. Funds of funds alone added US$383 million in the second quarter. Pension funds, which had added US$100 million in the first quarter, added only US$19 million in the second quarter, which may be a signal of nervousness, according to LJH.

*TASS Research is the information and research unit of Tremont Capital Management Inc., Rye, N.Y., which is a minority investor in and a strategic partner of HedgeWorld.

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