Investors’ interest in hedge funds slowed to a net inflow of $11.6 billion during the second quarter of the year as the industry recorded its smallest net quarterly inflow since the fourth quarter of 2001. The industry recorded a net gain of $24.6 billion of assets in the first quarter of 2005.
“Growth in the industry is slowing, coming on the heels of several years of record asset gains,” says Bob Schulman, CEO of Tremont Capital Management. “The recent slow down is largely attributable to lower performance in the first quarter as well as trendless markets. Nonetheless, the flow for the quarter is in keeping with historical industry growth rates.”
Tremont’s Asset Flows Report showed that, for the second quarter, the strategies that attracted the greatest amount of net assets were Multi-Strategy, Event Driven and Fixed Income Arbitrage. In order, these categories showed net inflows of $6.3 billion, $3.9 billion and $1.8 billion. Convertible Arbitrage had a net loss of $2.9 billion in assets for the quarter and Managed Futures registered a net loss of just under $1 billion for the period.
According to Schulman, Multi-Strategy funds have been attractive due to the diversity of those portfolios while Event Driven has been popular owing to strong performance of distressed investing. The Convertible Arbitrage category continued to suffer net losses for the fourth consecutive quarter as a result of difficult U.S. convertible market conditions while Managed Futures saw net outflows reflecting the generally trendless condition of global markets for most of the quarter.
“Once again, we saw investors favor those strategies that tend to do best in difficult markets,” says Schulman. “The outflows continued from Convertible Arbitrage even as that market seemed to be correcting itself from earlier levels.”