GLOBAL - Alternative fund flows were significantly boosted in the third quarter by interest from institutional investors seeking shelter from low yielding traditional markets.
The news follows this week’s launch of the Standard & Poor’s Hedge Fund Index and its three style sub-indices - further evidence that investor appetite for the asset class remains unabated.
Overall, investors added a net US$6.8bn to hedge funds in Q3, bringing the total allocation between January to September-end to just under US$17bn.
The figures were compiled by Tremont TASS Research which included data from 3,216 funds worldwide.
According to John Hock, Tremont’s director of global sales positive inflows into hedge funds this quarter related to growing interest from institutional investors.
“We believe that hedge fund flows are being favourably impacted by more institutional allocations.
“There continues to be a steady stream of interest from a variety of institutional investors who are looking for ways to allocate capital to strategies uncorrelated to the major markets.”
The research showed that investors continued to favour long/short equity, fixed income arbitrage and event driven strategies.
Long/short equity attracted the most net assets at US$2.1bn, followed by event driven with US$1.7bn and fixed income arbitrage with US$1.1bn.
“It was a good quarter for hedge funds as investors sought to allocate assets to strategies that would preserve capital better than long only strategies,” said Barry Colvin, president and chief investment officer at Tremont.
“Distressed investing continued to attract interest given the difficult economic environment and fixed income arbitrage typically provides opportunities during uncertain times.”
In a separate quarterly analysis US-based Hedge Fund Research (HFR) revealed that some US$152bn was held in a fund of funds vehicles.
HFR also showed rapid growth in the number of fund products available to investors - an estimated 274 hedge funds and fund of funds began operations in Q3 2002, growing to an estimated 5,135 total funds representing a 5.3% sequential increase in the number of funds from Q2.
HFR chairman and founder Joseph Nicholas predicted continued growth: Hedge funds have clearly demonstrated their strength as a wealth preserver during the recent periods of market decline and high volatility.
“Investors are focused on the benefits and opportunities thathedge funds bring to an investment portfolio and are allocating significant assets to the investment class.
Institutional investors have long been deterred by the opaque nature of hedge funds. But S&P’s new offering - along with others such as the MSCI Hedge Fund Index - aims to provides a new level of transparency.
S&P said that the index enables investors to track the impact of specific market events on the hedge fund asset class as a whole or on the three broad style categories tracked by the sub-indices.
It comprises 40 funds representing nine distinct hedge fund investment strategies grouped into three broad style categories -arbitrage, event-driven and directional/tactical.
More information can be found at www.standardandpoors.com.
This week's edition of Professional Pensions is out now.
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