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January 19, 2007
Hedge fund assets up 29 pct to $1.43 trln in '06
Money continued to flood into hedge funds during 2006, swelling industry assets to a record $1.43 trillion -- up 29 percent from 2005 -- even as aggregate hedge fund returns underperformed equity indices, new data showed.
Global inflows into the lightly regulated investment vehicles slowed in the fourth quarter, but still attracted a record $126.5 billion in new money for the full year, well above the $46.9 billion it attracted in 2005, according to industry tracker Hedge Fund Research.
Hedge funds, which charge investors high fees and use complex trading strategies aimed at generating consistent above-market returns, now number an estimated 10,500 worldwide, HFR said, fueled by demand from institutional investors, pension funds and wealthy families.
Despite their promise, however, hedge funds in aggregate failed to outperform the Standard & Poor's 500 index for 2006, HFR said. The HFRI Fund Weighted Composite Index returned 12.85 percent for 2006, compared to 15.8 percent total return for the S&P 500 Index <.SPX> last year.
Still, some hedge fund strategies produced hefty returns for 2006. The HFRI Emerging Markets Index led the industry performance, returning 24.3 percent in 2006. Event-driven and merger arbitrage strategies, which bet on prospects for corporate changes like mergers and restructurings, gained 15.7 percent for the year.
"While several strategies did post outflows for the fourth quarter, the general trend continues to be positive," said Ken Heinz, HFR president. He said industry assets have increased 47 percent in the last two years.
Investors, who typically struggle to find winners amid a myriad of speculative hedge funds, placed a large portion of new money into funds of hedge funds, which charge fees to find and invest in portfolios of successful hedge funds.
In 2006, funds of hedge funds brought in $49.7 billion in new money, compared with $9.5 billion in 2005 and $33 billion in 2004, HFR said.
-Reuters-
Posted by su at January 19, 2007 10:40 AM