The increase in the second quarter was mostly performance based as only $1.4 billion in new assets flowed into hedge funds during the past three months. With the second quarter’s increase, hedge fund assets now total nearly $665 billion, according to data from Hedge Fund Research, Inc. (HFR).
Most notable among the increase was the long-biased strategies, particularly HFRI Equity Non-Hedge Index, up 18.2%. This performance was followed by:
- HFRI Sector Index, up 13.9%
- HFRI Emerging Market Composite, up 13%
- HFRI Event-Driven Index, up 9.4%
- HFRI Equity Hedge Index, up 8%
- HFRI Market Timing Index, up 7.9%
Conversely, the market’s upturn left short-selling strategies with a 12.3% drop during the quarter. “Second quarter hedge fund returns were reflective of many of the factors that drove long-biased equity and bond returns: aggressive monetary policy, – fiscal stimulus, improvement in corporate earnings, lower oil prices, and a relatively quick resolution to the conflict in Iraq” said HFR President Joshua Rosenberg. “Even the Emerging Markets outperformance of most developed markets was a factor in overall performance. In the single-strategy category, this trend drew assets into Macro funds. Going forward, Q3 performance should be driven on whether or not the current trends congeal into an actual ‘global recovery.'”
Fund of Funds gained more than $87 billion in net assets on the quarter – the largest quarterly influx of net assets this year. Other quarterly asset gainers were:
- Macro adding $5.8 billion
- Relative Value Arbitrage adding $2.3 billion.
On the other hand, the $5 billion outflow of assets from Equity Hedge strategies occurred despite rather strong performance gains, underscoring capital outflows from early-quarter fears of a continuing conflict in the Middle East.
Additionally, the total number of funds rose significantly on the quarter with the estimated total number of funds, including Fund of Funds, now standing at 5,660. HFR estimates that 281 new funds have been launched since the beginning of 2003.
HFR’s Quarterly Industry Report for the Second Quarter 2003 is available at www.hedgefundresearch.com .