Report: Hedge Fund Industry Now Tops $1.78 Trillion

Nov 13 2006 | 9:05am ET

Online information provider estimates total hedge fund asset levels increased 3.53% from $1.725 to $1.786 trillion during the third quarter of 2006. Net new assets allocated to hedge funds increased an estimated $51.5 billion. The increase is less than the two prior quarters, but still represents the third highest inflow since the beginning of 2005.

Performance gains added an additional $9.3 billion to total assets. Fund of fund assets increased 4.40% including $34 billion in new assets, to an estimated $901 billion.
Volatility and losses in the second quarter did not slow the over 20% annual growth rate of assets in the hedge fund industry. Instead, the shift to increasing allocations in relative value and event driven strategies has carried over from the second quarter. Investors continue to shift allocations outside of U.S.-based strategies selecting funds with a global scope or European-focused funds for a regional focus.
Convertible Arbitrage and Merger/Risk Arbitrage had the highest percentage increase in assets. Convertible arbitrage managers have benefited from a resurgence of attention as recent returns continue to be strong. Convertible arbitrage hedge fund assets increased 9.11% in Q3, an estimated $4 billion, to $47.95 billion.

The global merger market as been operating at historically high levels and allocations to the sector reflect this activity. Merger/risk arbitrage hedge fund assets rose 9.73% in Q3, an estimated $4.44 billion, to $27.55 billion.
Global macro was the only major strategy which had a reduction in total assets during Q3. Global macro hedge fund assets fell 1.32%, an estimated $1.53 billion, to $114 billion.

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Editor's Note