Investors added a net $5.6 billion in assets to hedge funds in the first quarter of 2002, ending the record pace of growth achieved in 2001, according to research compiled by Tremont’s TASS ResearchTM.* In its quarterly analysis of industry fund flows, Tremont’s TASS ResearchTM found that investors continued to favor such strategies as Event Driven and Convertible Arbitrage, while, for the first time since the end of 1998, Long/Short Equity funds suffered a net loss of assets.
“The first quarter appears to have been a time when hedge fund investors were moving cautiously and reevaluating their investments,” said Patrick Kelly, Director of Manager Research at Tremont. “More investors were on the sidelines and those committing funds continued to lean toward strategies that could benefit from today’s uncertain market environment. Thus, it was no surprise that Distressed strategies were particularly popular again in the first quarter.”
The $5.6 billion first quarter net inflow compares with a net inflow of $8.8 billion in the fourth quarter of 2001, a year during which Tremont’s TASS ResearchTM noted a record $31 billion in new assets. The Event Driven category again led asset growth during the first quarter of 2002, gaining $1.95 billion of net assets, while Convertible Arbitrage captured $1.66 billion in net assets. Fixed Income Arbitrage was the third most popular strategy, adding $710 million in net assets.
“The declining interest rate environment of 2001 boosted returns for such strategies as Convertible Arbitrage and Fixed Income Arbitrage,” said Ed Hannon, Research Specialist at Tremont. “Investors noticed these favourable returns and rewarded those strategies with assets in the first quarter.” Meanwhile, Long/Short Equity funds lost a net $407 million of assets compared to a net inflow of $1.9 billion in the last quarter of 2001. The only other strategy to decline in assets in the first quarter was DedicatedShort Bias.
“Long/Short Equity investors were reallocating assets to other types of strategies where the return potential seemed greater,” said Kelly. “Investors appeared to be signalling that they preferred to be in styles such as Event Driven and Convertible Arbitrage.”
Other findings from the first quarter 2002 asset flows analysis included thefact that Emerging Markets and Managed Futures funds continued to gainassets, at $407 million and $396 million, respectively.