HedgeFund.net: Hedge Fund Assets Near $3 Trillion

Aug 18 2008 | 3:13pm ET

Total hedge fund assets are nearing $3 trillion, according to a new report conducted by HedgeFund.net. According to the report, money invested in hedge funds increased 4.41% in the second quarter to total $2.973 trillion.

Specifically, investors allocated an estimated $34.21 billion to hedge funds in Q2 and performance gains added an additional $91.28 billion to total assets. The dollar amount of fund liquidations during Q2 was larger than new fund launches by an estimated $8.52 billion; the third highest level of fund closures on record.

Despite liquidations, large funds appear to have attracted enough capital to grow the hedge fund industry at an organic growth rate (change in total assets excluding performance) of 11.06% in the last year.

Meanwhile, fund of funds experienced net withdrawal of investor assets in Q2 for the second time on record. Fund of funds liquidations were greater than new fund launches and allocations to existing funds by an estimated $470 million. Allocations to existing fund of funds were the third lowest dollar value on record and lowest as a percentage of total fund of funds assets. Performance gains actually lifted total fund of funds assets to an estimated $1.439 trillion, an increase from Q1 of 2.43%.

In terms of regional growth, hedge funds located in Europe saw the largest rate of organic growth. New allocations of $21.47 billion to funds located in Europe increased total assets 2.62%. Combined with performance gains, total European hedge fund assets rose an estimated 4.8% to $857.65 billion. Funds operating in Asia saw total assets fall an estimated $3.12 billion from a combination of performance losses and investor withdrawals. Redemptions alone resulted in Asian hedge fund assets falling $1.14 billion in Q2.

Investors Favor Fixed Income Over Equities

For the third consecutive quarter, investors have reduced allocations to equity strategies and increased allocations to fixed income related strategies.

Equity focused hedge fund assets experienced a net outflow of investor assets of $6.18 billion from Q1, however performance gains lifted total equity fund assets 2.16% during the quarter.

Fixed Income strategies experienced organic growth of 3.04% during Q2, and when combined with performance gains resulted in total fixed income focused fund assets increasing 6.55% from Q1 to an estimated $613 billion. Funds focusing on corporate fixed income related securities accounted for the majority of the increase. These funds saw organic growth of 7.59% in Q2, despite a slight net outflow from fund liquidations. Funds focusing on mortgage related fixed income securities experienced the highest rate of growth within fixed income strategies in Q2. These funds saw total assets rise 19.05% to an estimated $35.04 billion and organic growth accounted for the vast majority of the increase. In the first two quarters of this year, new allocations from investors increased mortgage related fund assets 14.35% and 16.92%, respectively.

Emerging Market Allocations Slow

Allocations to emerging market hedge funds have slowed significantly in the last three quarters. In Q2, new allocations increased total assets by only 0.64% from Q1 compared to 10.64% a year ago. Performance gains during Q2 resulted in a rise of total EM assets of 2.55% during the quarter, but gains were far below Q1 performance losses of $27.80 billion.

Losses in Q4 2007 and Q1 2008 led to redemptions in emerging Asia focused funds in Q2 2008.

Funds investing in Latin America saw net investor redemptions as well during the quarter. The outflow was small, a decline of 2.86% following a near record of organic growth in Q1 of 31.17%. When performance gains are included, total LatAm focused fund assets rose 6.61% in Q2 to an estimated $22.53 billion.

Total assets in funds investing in Developing Europe increased 9.39% in Q2 to an estimated $99.77 billion. Investors allocated an estimated $3.16 billion to these funds resulting in organic growth of 3.46%.

Funds investing in Africa/Middle East experienced their highest total of new allocations in Q2 as investor interest in the region expanded. Total assets in these funds rose 18.78% in Q2 with new allocations of $733 million.

Event Driven And Special Situation Fund Assets Soar

Dislocations in credit markets and credit related securities in recent prior quarters, event driven and special situations funds experienced record growth in Q2 2008. Total assets in these funds increased 16.31% to $390.42 billion. New allocation accounted for the highest level of growth for these funds since 2004.

Investors allocated an estimated $32.26 billion to existing funds and the net of new launches and liquidations accounted for a record inflow of $13.55 billion.

Distressed Fund Assets Swell

Total assets increased an estimated $23.11 billion to $275.43 billion in Q2. Investor interest in distressed securities has risen for three consecutive quarters and the strategy saw organic growth of 4.05% in Q2 versus 2.04% in Q1 and 0.96% in Q4 2007.

Broad Commodity Exposures Increase, Energy Sector Allocations Decrease

CTA/Managed Futures products have been prime beneficiaries of broadly rising commodity prices. In the past four quarter these funds have experienced increasing rates of organic growth. In Q2 08 investor allocations increased assets 7.28%, the highest rate of organic growth in four years. Total CTA/Managed Futures assets reached an estimated $218.36 billion in Q2. Conversely, Energy Sector hedge fund assets, which are primarily long biased energy sector equity focused managers, have seen allocations decline at an increasing rate in the past three quarters. The drop in Q2 was 6.63%, the highest on record. Still, at an estimated $122.49 billion, these funds are by far the largest industry specific group tracked by HFN.

 


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