Returns average 2.13 percent for the quarter and 9.35 percent for the year; Emerging Markets up 20.9 percent for 2005; Event-Driven and Equity Hedge see strong flows

HedgeCo.Net – CHICAGO – January 25, 2006 – Hedge funds experienced the first quarterly decline in new asset flows in more than 10 years, with outflow of $824 million in fourth quarter 2005, according to data released today by Hedge Fund Research (HFR), the leading source of hedge fund information and performance data.

For the year, hedge funds brought in just under $47 billion in net new assets, bringing the industry total to $1.105 trillion.  This compared to nearly $73.6 billion in net new flows and $972.6 billion in total assets in 2004, and $70.6 billion in new money and $820 billion in total assets in 2003.

Funds of funds saw net outflows of $2.1 billion, the second consecutive quarter of outflows for the category.  For the year, funds of funds brought in $9.5 billion in net new assets compared to $33 billion in 2004 and $59.4 billion in 2003.  There is $395 billion invested in funds of funds globally, according to HFR.  Fund of fund performance was up 2.05 percent in the fourth quarter, and 7.33 percent for the year according to the HFRI Fund of Funds Composite Index. 

The HFRI Composite Index returned 9.35 percent for all of 2005, including 2.13 percent in the fourth quarter.  The Emerging Markets strategy was a top performer for both the fourth quarter and the year, up 4.23 percent for the quarter and 20.9 percent for all of 2005.  Equity Hedge, the largest single strategy with $332 billion in assets, was up 2.61 percent in the fourth quarter and 10.66 percent for the year.  Convertible Arbitrage turned in its second consecutive quarter of positive performance, up 0.83 percent.  For the year, however, the strategy was down 1.94 percent – the only strategy to post negative returns in 2005.

“With performance off in October, asset gathering had a slow start in the fourth quarter and never fully caught up,” said Joshua Rosenberg, president of HFR.  “Funds of funds continued to lose assets as well, although it appears that at least a portion of that money found its way into Equity Hedge or Event-Driven funds.”

Other data of interest from the HFR quarterly report:

• On a percentage basis, Fixed Income: High Yield saw the biggest increase in assets flows for the year, up 30 percent to $8.7 billion in total assets.

• Convertible Arbitrage funds continued to lose assets, with an outflow for the year of $7.67 billion.  Assets in the category shrunk to $36.7 billion at the end of 2005 from $44.7 billion in 2004.

• Sector: Energy funds fell by -0.04 percent in the fourth quarter, but were up 23.48 percent on the year.  Assets in the category grew by 121.8 percent in 2005 to $10.58 billion. 

• Equity Hedge and Event-Driven were far and away the biggest asset gatherers in dollar terms, collecting $13.65 billion and $13.74 billion in new assets respectively. 

• Equity Hedge remains the single biggest strategy, with $332 billion in assets, followed by Event-Driven with $152.2 billion and Relative Value Arbitrage with $130.4 billion.

NOTE:  HFR data is based on the more than 9,000 funds tracked historically by the firm which includes the over 5,300 funds reporting to the company as part of the HFR Database subscription product.