Hedge Fund Liquidations Outpace Inflows in Q2, Q3

Nov 30 2007 | 11:41am ET

Total hedge fund assets increased in the third quarter, but assets lost in liquidations outpaced the increase from new fund launches in the second and third quarters, according to a new report.

First, the good news: Hedge fund assets increased by 3.3% in the third quarter to $2.68 trillion from $2.59 trillion in the second. New allocations to the hedge fund industry increased its total asset levels by an estimated $339 billion through the first three quarters of 2007, according to HedgeFund.net.

Emerging market hedge funds enjoyed especially swift inflows, with assets reaching an estimated $299 billion on the quarter, an increase of $48 billion through new allocations in the first nine months of the year. Specifically, the report says hedge funds investing solely in Brazilian markets have become a much larger portion of the total hedge fund assets dedicated to Latin America in the last year. Total assets in Brazil focused funds reached an estimated $7.7 billion in Q3, an increase of $3.3 billion in 2007 alone.

China-focused hedge funds continue to attract investors with total assets in these hedge funds reaching an estimated $22.8 billion, an increase of 89% through the first nine months of the year.

Natural resources-focused hedge funds have also fared well amassing some $170 billion in total assets through Q3, led by energy-focused funds with $133.8 billion.

However, problems in the credit markets affected inflows for structured credit hedge funds, which saw its total assets fall 9.9% in the quarter to an estimated $62.7 billion. The average structured credit hedge fund returned 2.2% year-to-date through September, according to the report.

HFN also estimates that 47.7% of all assets in hedge funds were allocated through funds of hedge funds last quarter, which is down from 48.2% in the second quarter.

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