Hedge Fund Flows Still Strong in Q3

November 12, 2001(PLANSPONSOR.com) - Investors poured $6.9 billion in new money into hedge funds in the third quarter, slightly down from the second quarter's $8.4 billion.

Still, that is a significant amount considering the total for the whole of 2000 amounted to $8 billion, according to figures from TASS Research

In the first nine months of the year, hedge funds, loosely regulated investment vehicles, attracted a record $22.3 billion of new money. Investors generally chose strategies with a negative low correlation to market performance, avoiding those that moved in line with the markets.

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The CSFB/Tremont Long/Short Equity Index lost 5.1% between January and September this year. These funds, which account for almost half of all hedge-fund assets have been the worst performing hedge funds this year, though still ahead of major equity indices. Funds employing this strategy attracted just 7% of the new cash inflow.

Over the same period, the CSFB/Tremont Event-Driven Index gained 7.9%. Funds in this category, which includes distressed securities funds, saw the largest inflow of new money- attracting $2.3 billion.

According to TASS, the increase in the supply of distressed securities have helped boost the returns of fund in this category, however, gains in this category have been offset by losses in hedge funds that bet on merger and acquisition activity.

Convertible Arbitrage

The CSFB/Tremont Convertible Arbitrage Index advanced 12.2% in the first nine months of the year, buoyed by falling interest rates and equity market volatility. These funds seek to capitalize on discrepancies between stocks and convertible bonds issued by the same company.

Convertible Arbitrage funds drew $2.1 billion in new money, despite their mere 8% share of total industry assets.

Short Sellers, Macro Traders, Emerging Markets

The CSFB/Tremont Dedicated Short Bias Index, which comprises funds that bet on declines in stock market prices, though up 10.7% over the period, took in only $9.8 million of new money.

The CSFB Global/Macro Index was up 14.6%. These funds, which attempt to make money on global currency and interest rates, attracted $543.7 million, partially offsetting the second quarter’s $1.15 billion in outflows.

Emerging markets funds managed to pull in $213.2 million of new money despite their weak performance, which saw the CSFB/Tremont Emerging Markets Index lose 4.9% in the first nine months of the year.

The TASS database tracks 2,525 funds with total assets of between $400 billion and $450 billion.