New data from hedge fund industry group Hedge Fund Research Inc. (HFR) shows that investors poured $22.2 billion into these loosely regulated investment pools in the first quarter of 2004.
Analysts at the Chicago-based company on Wednesday said strong demand for hedge funds, which became popular during the bear market because they made money even as stocks fell, should put the industry on track to set new records this year.
"With this strong start, 2004 is on pace to surpass the $75 billion in net new flows attracted by the industry in 2003," HFR analysts wrote in a statement.
The hedge fund industry, which is not regulated by federal authorities, now invests an estimated $864.7 billion, mostly for very rich investors, pension funds and endowments. That is up nearly 6 percent from $817 billion under management at the end of 2003, HFR said.
First quarter inflows this year marked a dramatic turnaround from the same time last year when investors pulled out about $6 billion, HFR said.
In the first three months of 2003, the equity market began to rebound amid stronger earnings reports and better economic news.
Inflows for the first three months of 2004 look strong even compared with fourth quarter 2003 numbers.
In the last three months of 2003, investors poured a record $26.8 billion into hedge funds, compared with the year ago quarter when they pulled out $695 million, according to TASS Research, a unit of Tremont Capital.
As more investors, including pension funds, invest with hedge funds, many are choosing "funds of funds" where a manager tries to spread the risk by investing with a pool of hedge funds.
HFR said funds of funds attracted $15.7 billion in the first quarter, marking the biggest inflow of any hedge fund sector. These types of funds now manage some $317.5 billion in assets.
Industry analysts said new investors are not being scared away by hedge funds’ dramatically lower returns, arguing many investors would prefer portfolio managers to play it safe. Hedge funds earned a reputation for delivering eye-popping returns but some also failed and lost billions of dollars for clients.
According to the CSFB/Tremont Hedge Fund Index, the average hedge fund returned 2.72 percent in the first three months of the year.
(Reuters)