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Capital Inflows Slow as Performance Suffers, HFR Says

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CHICAGO (–After inflows surpassed records the last four quarters, Hedge Fund Research says that second quarter asset flows slowed to US$7.5 billion from the quarterly average inflows of US$21.2 billion and US$19.6 billion of the last year.

Officials at the research firm estimate that hedge fund assets under management have increased slightly to total US$865.9 billion from the US$864.7 billion at the end of the first quarter.

The slowdown in assets may be due to poor performance. Most of the major hedge fund indexes this year have been posting disappointing results, and the HFRI Fund Weighted Index is no different. HFR reported that the index posted its first negative quarterly return since third quarter 2002. Performance across all hedge fund sectors averaged a negative 1% in the second quarter.

Year-to-date performance is not much better with only a gain of a modest 2.7% through the first half of the year. Total asset flow for the year stands at US$30 billion, officials said.

The leading hedge fund strategy for the second quarter was distressed securities, which was up 3.2%. Fixed-income managers in the mortgage backed securities area did well, too, and were up 5.2% for the year through June.

The emerging markets sector dipped 5% in the second quarter, which was its first quarterly drop since the third quarter of 2002. The macro category also fell, seeing its first down quarter since 2000, with a return of negative 3.3%. For the year to date, macro managers are still up 0.34%.

Overall, most of the asset classes moved in a highly correlated fashion during the quarter and had to grapple with a low volatility environment, said Joshua Rosenberg, president of HFR, in a statement.

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Contact Robert F. Keane with questions or comments at: [email protected].