Investors Lose Appetite For Hedge Funds

Jan 18 2007 | 3:14pm ET

Burned by poor performance and shaken by the Amaranth Advisors fiasco, investors stanched the flow of new money into hedge funds in the fourth quarter, though it was still a record-setting year for inflows.

Hedge funds added $15.8 billion over the past three months, a 64% drop from the $44.5 billion raised in the third quarter, Hedge Fund Research reports. But hedge funds had already rebounded strongly from its first outflow in a decade in the final quarter of 2005, and net deposits for the full year were $126.5 billion, compared with $46.9 billion in 2005.

At the end of 2006, hedge funds managed $1.43 trillion, a 29% jump from the prior year, HFR said.

Not surprisingly, top-performing strategies were also the best at attracting new cash. Event-driven funds took in $3.9 billion in the fourth quarter, the second-highest total behind equity hedge funds, which raised $8.7 billion.

Funds of hedge funds ended the year increasing their assets for the fourth straight quarter, adding $3.89 billion over the past three months, bringing their global total $547 billion.

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    One of the most unique charity benefits in the hedge fund industry, A Leg To Stand On's (ALTSO's) Hedge Fund Rocktoberfest - NYC, raised nearly $500,000 last Thursday thanks to the generous support of major sponsors and nearly 1,400 attendees from the Tri-State finance, business and hedge fund communities. Read more…