Record Hedge Fund Growth Continues, FoFs Decline

May 17 2007 | 12:22pm ET

Hedge fund assets, by most measures, shattered record growth numbers last year, and the pace continued in the first quarter of 2007, according to

Hedge funds manage more than $2.4 trillion, adding an estimated $250 billion—11.5%—in the first three months of the year, the largest quarterly increase on record. Most of the inflow, $168.6 billion, is new money, with the remaining $78.9 billion coming from fund performance.

Funds of funds continue to decline as an asset source for single-manager funds. HFN reports their assets rose just 6% to $1.143 trillion, mostly due to performance. Funds of funds now account for less than half of single-manager assets, 48%, compared to 50% as recently as the end of last year.

While HFN’s numbers are on the robust side, J. Alan Lenahan and Gregory Dowling of Fund Evaluation Group note that record-setting growth is the norm.

 “No matter the source, the industry has grown considerably, and by all estimates this growth has been driven by the global institutional acceptance of the hedge fund model,” they wrote in a recent report. As an example, they cite Hedge Fund Research numbers—“on the conservative end of estimates”—which show hedge funds adding $126 billion in 2006 to reach $1.5 trillion, shattering the previous record of $99 billion, set in 2002.

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