CHICAGO (HedgeWorld.com)–It seemed like it was just a matter of time, and now that time apparently has come.

Hedge fund industry assets topped US$1 trillion during the first quarter of 2005, according to new data from Hedge Fund Research Inc. The industry took in US$27.35 billion in the Jan. 1 through March 31 period, and all strategies earned 0.88% in the first quarter, all of which added to an asset base estimated to be US$972.6 billion as of Dec. 31.

“The recent milestone of [US]$1 trillion in industry assets is further evidence that hedge funds continue to appeal to those investors seeking diversified returns without correlation to equity and bond markets,” said HFR President Joshua Rosenberg in a statement. “The first quarter again demonstrated the advantage of this approach, with hedge funds in the aggregate outperforming the major market indices.”

The Standard & Poor’s 500 stock index fell 2.59%, or 2.15% with dividend returns included. The Morgan Stanley Capital International World Index fell 1.55% in the first quarter.

Event-driven hedge fund strategies gathered the most new assets in the first quarter, with investors placing US$5.9 billion with such managers. Relative value arbitrage managers took in US$4.6 billion in new assets, and equity hedge strategies took in US$4.2 billion, according to HFR.

Only one strategy–convertible arbitrage–saw a net outflow of assets in the first quarter. Convert arb managers lost just under US$1 billion in assets between the beginning of January and the end of March.

“With the markets still influenced by choppy trading and a lack of direction, investors have been directing assets to those strategies that offer more diversification and downside protection,” Mr. Rosenberg said. “The interest in event-driven and relative-value strategies appears to reflect the general view that now is not the time to be taking on additional market risk.”

Funds of funds gathered US$9.4 billion in new assets in the first quarter and now have about one-third of all hedge fund assets at US$371 billion. Equity hedge fund strategies account for US$291.5 billion in assets, event-driven US$135.8 billion and relative-value arbitrage US$127 billion, according to HFR.

Macro fund managers saw US$3.25 billion in new assets in the first quarter, nearly four times what they brought in during the fourth quarter of 2004, according to HFR. Technology funds saw outflows of US$953 million in the first quarter, after losing US$1.43 billion during 2004.

In terms of performance, energy-related hedge funds posted strong gains in the first quarter, up 6.27% according to HFR. Not surprisingly, given the equity markets’ struggles, short sellers posted a 6.15% gain in the first quarter. Short sellers lost 3.79% in 2004, according to HFR.

CClair@HedgeWorld.com

Contact Bob Keane with questions or comments at: bkeane@investmentadvisor.com.