The long and the short
Investors are moving in numbers towards hedge funds, as they look to profit from volatile markets. Whatever else investors may be doing, they aren’t avoiding hedge funds. The third quarter of this year saw assets of $6.9bn flowing into hedge funds, according to data tracked by TASS Research, the information and research unit of US-based Tremont Advisers. Long/short equity is proving the most popular hedge fund strategy, holding nearly 47 per cent of the assets tracked by TASS. But with only $485m flowing into long/short equity in the third quarter, the lion’s share of asset inflows, $4.4bn, poured into event-driven and convertible arbitrage funds. Results, however, do not reflect any terrorist incident-related changes, as it was too late to shift capital before most hedge funds’ September 30 quarter’s-end redemption guidelines. Asset flows “Asset flows in general could take a hit in the fourth quarter as a result of the September 11 atrocities,” says Bill Brown, director of investment strategies at Tremont Advisers. “But in the long run, hedge funds could gain assets as investors seek out ways to profit in volatile markets,” he adds. The event-driven category saw net inflows of $2.3bn, the majority of which was directed into distressed funds. Convertible arbitrage funds gained assets on the back of falling interest rates, a healthy supply of convertible issuance and high equity volatility. Such strategies enjoyed net inflows of $2.1bn, although they hold less than 8 per cent of total hedge fund assets. Equity market-neutral funds collected $582m in the third quarter, a big drop from the two previous quarters when a total of $2.2bn flowed into the category. A lack of capacity is keeping a lid on the amount of money that can go into equity market neutral strategies, where about 7 per cent of total hedge fund assets are invested. Global macro funds received positive net flows for only the second time since the third quarter of 1998, collecting $544m. Global macro funds comprise about 8 per cent of total hedge fund assets. Performance has been good, though not on a risk-adjusted basis, according to TASS. Emerging market funds also saw assets rise for the second consecutive quarter. More than $213m flowed into emerging market funds in the third quarter. Prior to the second quarter, emerging market funds experienced net outflows for 12 consecutive quarters beginning with the second quarter of 1998. Fixed-income arbitrage funds collected a net $342m in the third quarter, while managed futures hedge funds received net flows of $288m, and short sellers collected $10m. TASS asset flows are based on data for the more than 2500 funds in the TASS database, relying on information for only those funds that provide assets under management. Kristin Fox is executive editor and director of content for HedgeWorld (kfox@hedgeworld.com). Jeff Joseph is managing director of FundSelect, an online hedge fund marketplace for investors (jjoseph@hedgeworld.com)
