By Joanne Frearson Hedge funds have received $60bn worth of new assets since January 1994, accordin...
By Joanne Frearson
Hedge funds have received $60bn worth of new assets since January 1994, according to a report released by TASS Investment Research.
There were 2,200 funds included in the study. The report found performance appreciation for total assets under management between January 1994 and June 2000 was $100bn. There was also a fourfold rise in assets to $205bn.
In addition there were redemptions of $5bn in the second quarter of 2000, following the liquidation of high profile hedge funds and the restructuring of George Soros fund.
The research noted an increase interest for more diverse types of equity exposure. Nicola Meaden, chief executive of TASS Investment Research and managing director of Tremont Advisers said: "Our data shows a consistently increasing appetite for equity market neutral styles even as overall market volatility has increased."
The report indicated a link between a rise in volatility in the equity markets and increased flow of assets into equity market neutral strategies.
Bruce Ruehl managing director and chief investment strategy of Tremont Advisers said: "Capacity is a major concern for many of these market neutral strategies. There is a serious limit to how much can be effectively managed.
"If you study the results of the report, you can see a textbook case of when not to invest in convertible arbitrage. Investors continued to allocate assets into this cyclical category at the market top in the first part of 1998 without seeming to be concerned about either the spreads or the credit sensitivity of this sector."
During this period spreads were wide, the Russian crisis hit and liquidity in the market dried up, while in the US the equity market performed well.
Bonds performed badly and short stock positions were also harmed. According to the report, over the past two years, there has been a real divergence of asset flows between merger arbitrage and distressed, with merger arbitrage attracting most of the assets.
For merger arbitrage, the overall increase in deal activity in the US, and in Europe since the introduction of the euro, has increased opportunities and, therefore, attracted assets.
For the distressed sector, during the late 1990s supply was down and what was available came from bad companies with bad balance sheets, the report concluded.
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