Hedge fund allocations in decline

The $12.5 billion allocated to hedge funds during the quarter marked the lowest level of new capital since 2005.
JUL 18, 2008
The recent volatility in the financial markets is the driving force behind reduced allocations to hedge funds, according to the latest data from Hedge Fund Research Inc. in Chicago. The $12.5 billion allocated to hedge funds during the quarter ending June 30 marked the lowest level of new capital into the alternatives strategy since the fourth quarter of 2005. Total investment inflows for the first six months of 2008 reached $29 billion, compared with $118 billion in inflows during the first six months of 2007. Total inflows into hedge funds last year were $194.5 billion, according to the research findings released today. A big loser of assets during the most recent quarter were relative value strategies, which saw more than $3.6 billion withdrawn. Macro strategies, meanwhile, pulled in $7 billion in new money. “There were some interesting allocation preferences in response to performance volatility in the second quarter,” said Kenneth Heinz, president of HFR. “The marketplace appears to be expecting a volatile environment and portfolios are being positioned to benefit from this,” he said. HFR calculates total hedge fund industry assets at $1.9 trillion.

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