Cash Floods Hedge Fund Coffers

August 20, 2002 ( - As investors pulled money out of mutual funds in the second quarter, they poured a net $4.57 billion in assets into hedge funds, according to Tremont's TASS Research

In its quarterly analysis of industry fund flows, Tremont found that investors continued to favor Long/Short Equity and Convertible Arbitrage strategies as well as funds that use a multi-strategy approach. 

Event Driven funds attracted less interest during the quarter, which Tremont said signals continuing concerns regarding the recent accounting scandals. 

The second quarter net inflow compares with a net inflow of $5.6 billion in the first quarter of 2002. 

The Long/Short of It

The Long/Short Equity category led asset growth, attracting $1.47 billion in the second quarter, followed by Convertible Arbitrage with $935 million in net growth.  Multi-strategy funds and those with unique approaches added a net $496 million in assets.

Interest in the Event Driven and Fixed Income Arbitrage categories fell in the second quarter.  For the former, while there was a record number of defaults in the second quarter, Tremont said.

Research found less interest likely due to investors’ concerns about creditworthiness in the wake of several corporate accounting scandals. 

Asset flows to Fixed Income Arbitrage slowed owing to expectations of a rise in interest rates, according to Tremont

Meanwhile, Global Macro attracted just $41 million in the quarter, down sharply from the first quarter.  This development reflects the relatively small number of managers in the category as well as a lower level of interest from institutional investors, who have been very conservative in allocating assets to this strategy, according to Tremont.

The Dedicated Short Bias area gained $17 million as investors demonstrated more appeal for strategies that took advantage of shorting the market.
Other findings from the second quarter 2002 asset flows analysis included the fact that Managed Futures and Emerging Markets continued to gain assets, at $300 million and $284 million, respectively.

Equity Market Neutral also took in $181 million, or nearly half of its first quarter flows, likely due to capacity constraints.