Hedge Fund Fervor Cools in Q4

February 14, 2003 (PLANSPONSOR.com) - Hedge funds proved to be a lot less attractive to pension funds in the fourth quarter, according to a new poll.

Pension funds allocated just $100 million to hedge funds in the last quarter of 2002, just a third of the $317 million they sent to hedge funds in the third quarter, according to a poll of 50 hedge funds by LJH Global Investments and Reuters.   That shift was much more dramatic than investors overall, who nonetheless put 20% less into hedge funds in the quarter, according to the survey.

The falloff was dramatic in an industry where assets under management doubled in recent years.   Fund managers reported net inflows of $596 million in the past quarter, down from $744 million the prior quarter.  

The bulk of that inflow, some $470 million, went to equity hedge and equity market neutral funds, whose strategies try to cut out risk, according to the report.

Conversely, no money went to short-biased funds, and just $2.2 million went to commodity trading advisers, while $50 million went to global macro hedge funds, strategies that delivered last year’s best returns.

Hedge funds that invest in distressed companies, corporations that are bankrupt already or are deemed to be at risk of doing so, took in $21.7 million in new money last quarter, down a third of the $32.7 million they received in the previous quarter, according to the poll.