RYE, N.Y. (HedgeWorld.com)–The second quarter of 2005 saw the hedge fund industry recording its smallest net quarterly inflow of investor assets since the fourth quarter of 2001, according to research compiled by Tremont Capital Management Inc. All told, US$11.6 billion in assets were invested in hedge funds in the quarter, compared to a net allocation of US$24.6 billion for the first quarter of the year.
Bob Schulman, chief executive of Tremont Capital Management, attributed the slowdown to lower fund performance in the first quarter as well as “trendless markets.” However, he added, the flow for the second quarter is in keeping with historical industry growth rates.
Strategies attracting the most net assets were multi-strategy (US$6.3 billion), event-driven (US$3.9 billion) and fixed-income arbitrage (US$1.8 billion). Convertible arbitrage took the biggest lumps, with a net loss of US$2.9 billion, suffering net losses for the fourth consecutive quarter, while managed futures registered a net loss of slightly less than US$1 billion.
In a statement, Mr. Schulman said that investors have been attracted to the diverse portfolios of multi-strategy funds, while event-driven strategies have been popular because of the strong performance of distressed investing.
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“Once again, we saw investors favor those strategies that tend to do best in difficult markets,” he said. “The outflows continued from convertible arbitrage even as that market seemed to be correcting itself from earlier levels.”
The Tremont Asset Flows Report, issued quarterly, is based on an asset base of approximately $735 billion in hedge fund allocations and represents an array of managers and funds located in the United States and overseas. Tremont estimates the global industry’s assets to be approximately US$1 trillion, with an additional US$325 billion estimated to be in privately managed accounts.