Hedge funds covered by Tremont Tass Research experienced their first net outflow of capital for more...
Hedge funds covered by Tremont Tass Research experienced their first net outflow of capital for more than two years in the last three months of 2002.
Tass hedge fund outflows were $696m in the fourth quarter of last year but long/short equity strategy was the biggest loser, at $2.8bn, followed by event driven and global macro.
Barry Calvin, CIO of Tremont Advisers, said long/short inflows are still up on an annual basis despite the falls in the fourth quarter.
'There was significant activity by investors in long/short equity funds but they were nervous last year and many did not want to reduce their exposure to this strategy,' he added.
Despite the fourth quarter loss, net inflows over the course of the whole year were $16.3bn.
Equity market neutral gained the most in assets in the fourth quarter, adding $1.3bn, followed by fixed income arbitrage, gaining a record $793m, and managed futures, with a record $725m inflow.
Net inflows over the course of the whole year put the recent net outflows in clearer perspective, according to Steven Jupp, director of quantitative research, and show hedge funds are still a growing market.
Capital flight from hedge funds in the fourth quarter could have been a delayed reaction to accounting turmoil in mid-2002 but, overall, hedge funds are becoming more popular among institutions and investors, he said.
On the movement of capital between strategies, Colvin said: 'Once again, hedge fund investors seemed to be rewarding those strategies, such as market neutral and managed futures, that are non-correlated to major markets and indices.
'In addition, the flight to fixed income investment continued, reflecting a desire to stay in conservative strategies and protect principal.'
Overall for 2002, event-driven and convertible arbitrage were the two most popular strategies among the funds covered by Tremont, gaining a net $3.4bn and $3.2bn in fund inflows respectively.
Other strategies in favour include fixed income arbitrage and equity market neutral. The only category that suffered a net outflow for the year was dedicated short bias, which lost a net $17.4m despite the continuation of the bear market.
'Given the uncertainties in the economy and financial markets, 2002 appears to have been a good year for the hedge fund industry,' said Bob Schulman, co-chief executive officer of Tremont.
'While fund flows slowed from the levels achieved in 2001, investors were nevertheless tapping hedge funds as a way to stay involved in the markets.'
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