This total represents a 19% growth rate in the industry, as institutional investors such as pension funds and endowments rush to follow high net-worth investors. The fourth quarter was especially kind to hedge funds, with $27 billion flowing into such funds from October to December. Investment returns in this quarter were also solid, with 5.3% gains seen on average. Returns on the year were 9.64%, lower than most mutual funds and much lower than 2003’s hedge fund returns of 15.44%.
By comparison, only $16.9 billion came into the funds in the third quarter. Hedge fund assets now total $972.6 billion, according to HFR.
This large inflow, however, does not match the totals seen in 2003 when $198 billion came into the hedge fund sector.
Hedge funds looking at merger and acquisitions, as well as distressed debt, grew the fastest on the year, expanding by 28% in 2004 to a total of $128.6 billion in assets.
Fund of funds represent the largest share of hedge fund investments. These funds, which themselves invest in other hedge funds, now have $358.6 billion in assets under management.