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February 22, 2005 at 07:00 PM
RYE, N.Y. (HedgeWorld.com)–Hedge fund investing slowed down toward the end of 2004, but the industry still managed to absorb a record US$123 billion in net inflows, according to research from Tremont Capital Management Inc.’s* TASS Research division.
The fourth quarter saw the lowest net asset flow number TASS recorded all year–US$16.3 billion. That followed a US$25.1 billion figure for the third quarter, which itself was slightly more than half the record US$43.3 billion TASS measured in the second quarter. TASS’s first quarter estimate of asset inflows was US$38.2 billion.
“Growth continued last year, although the pace declined through the last half,” said Robert I. Schulman, co-chief executive of Tremont, in a statement. “The industry has attracted substantial interest over the last years as investors sought out returns non-correlated to the broad markets.”
While some may be quick to seize on the slowdown in asset flows in the second half of 2004 as evidence the hedge fund industry is cooling off as it approaches US$1 trillion in assets, there are a number of reasons to hold off on that assessment. Mr. Schulman emphasized that the growth slowdown as measured by TASS was not unexpected, given that low equity market volatility affected many funds’ performance and kept hedge fund investors “on the sidelines.”
“The fourth quarter marked a cycle of slower, yet good growth in an industry where asset flows have grown at a feverish pace,” Mr. Schulman said.
Another reason for caution among the “hedge funds are so over” crowd is that less than a month ago, Chicago-based Hedge Fund Research Inc., reported that its database showed fourth-quarter flows of US$27 billion, which along with US$52 billion in positive fund performance combined to fuel the largest single-quarter growth in hedge fund assets HFR had ever recorded.
According to the TASS data, long/short equity strategies saw the biggest inflows in 2004. Investors poured US$33 billion into such strategies, including US$4.5 billion in the fourth quarter, according to TASS.
