( www.hedgeco.net ) – Chicago – October 20, 2005 – New fund flows into hedge funds slowed to $9.4 billion in the third quarter, down from $10.9 billion in the second quarter and $16.9 billion in the third quarter 2004, according to data released today by Hedge Fund Research (HFR), the leading source of hedge fund information and performance data.

At the same time, average third quarter returns jumped to 5.38%, up from 1.12% in the previous quarter.  This compared to returns of 3.61% for the Standard & Poor’s 500 and 6.58% for the MSCI World during the same period.  For the year, the HFRI Composite Index, an average of overall hedge performance, is up 7.36%.  Total industry assets stood at $1.1 trillion as of September 30, 2005.

            Emerging Markets was the top performer, up 10% on the quarter and nearly 16% year to date.  Sector funds were up 6.75% for the period, led by Energy, which climbed 14.78%.  Equity Hedge remained the single largest category with just under $320 billion in assets.  The strategy returned 6.11% in the third quarter, and collected $1.9 billion in new fund flows.  Macro funds, another major category, returned 3.57% in the quarter and pulled in $944 million.  Event-Driven was up 4.28% for the period, and attracted $2.5 billion in new assets.  Year to date, Event Driven continued to be the most popular strategy with investors, attracting a total of $10.9 billion in new assets. 

            Funds of funds (FOFs) saw an outflow of more than $1.2 billion in assets in the third quarter.  This compared to inflows of $3.5 billion in 2Q, and $6.2 billion in the third quarter of 2004.

 Ã¢â‚¬Å“It’s no secret that hedge fund returns have been mixed for the first half of the year, and that has almost certainly kept some investors on the sidelines.  This caution is reflected in the continued decline in asset flows which we’ve seen now for three consecutive quarters,” said Joshua Rosenberg, president of HFR.  “Recent returns have picked up, however, and some hedge fund managers believe that market volatility is returning as well.  Both factors should draw increased investor interest to the sector going forward.”
 
Other data of interest from the HFR quarterly report:
 

• All strategies tracked by HFR posted positive returns in the quarter and the year to date, with the exception of Convertible Arbitrage which continued to post negative returns through the nine-month period. 
• Energy funds took in slightly more than $1 billion in new flows for the third quarter in a row, bringing total assets in the strategy to $10 billion.  Year-to-date the sector is up 25.74%.
• Convertible Arbitrage funds continued to lose assets, albeit at a slower rate.  Outflows for the strategy in the third quarter were -$725 million, down significantly from -$4.2 billion in Q2.   Total assets in the strategy now stand at $38.3 billion, down from a peak of $48.5 billion in the second quarter of 2004. 
• Within the Emerging Markets category, Eastern Europe/CIS performance was 23.68% for the quarter and 39.67% year to date.  Latin America posted returns of 6.41% and 13.68% for the respective periods.

 
About HFR
 
Chicago-based HFR Group L.L.C., founded in 1993, is a global leader in hedge fund data, research, indexation and asset management.  The HFR Group companies include Hedge Fund Research, Inc., andHFR Asset Management L.L.C.  Hedge Fund Research produces HFR Database, considered to be the definitive source of hedge fund performance and information.  HFR also distributes the HFRIMonthly Performance Indices – the premiere benchmarks for the hedge fund industry.  With $4 billion in assets under management, HFR Asset Management offers a range of hedge fund investmentproducts: Investable Indices, Funds of Funds, single-manager funds and customized multi-manager funds.
 
 

Contacts:
 
JoshuaRosenberg                                                        Henrietta Hirst
Chicago/312 6280319                                                London/020 7262 6648 or 07880 742 375