Hedge Fund Assets Increased 30% in '07

January 16, 2008 (PLANSPONSOR.com) - Hedge fund assets increased by $462 billion in 2007 to $1.997 trillion - an increase of 30% for the year - according to estimates by Hennessee Group LLC.

A Hennessee press release said preliminary results indicate the hedge fund industry experienced net inflows of $278 billion (18%) in 2007. The remaining $184 billion (12%) increase was the result of positive performance, as evidenced by the Hennessee Hedge Fund Index, which advanced 11.6% in 2007. The data does not include fund of hedge funds assets.

The $278 billion inflow represents the largest amount of annual inflows into the industry in its history and a 75% increase over the $159 million inflow in 2006, Hennessee said. The percentage increase in assets due to inflows represents the highest level of inflows since 2001.

“2007 was clearly a milestone year for hedge funds,” said E. Lee Hennessee, Managing Principal of Hennessee Group, in the release. “With the exception of two high profile failures in the mortgage and credit space, performance for the industry was excellent, causing institutional investors to further increase their interest in the asset class.”

According to the Hennessee data, total assets for arbitrage and event driven funds were up approximately 35% in 2007. The Hennessee Arbitrage/Event Driven Index advanced 7.8% for the year, as arbitrage strategies were affected by the volatility in the credit markets. 

The majority of assets flowed to large, multi-strategy funds, the preferred choice among pensions that make direct investments in hedge funds.

Total assets for long/short equity funds increased approximately 26% in 2007.  The Hennessee Long/Short Equity Index advanced 12.1% for the year.

Hennessee Group estimates that individuals/family offices and fund of hedge funds represent the largest sources of capital for hedge funds, each comprising 31% of total industry capital.  Pensions represent another 14% of industry capital, while endowments/foundations represent 12%, and corporations represent 12%.