Investors cut US hedge fund allocations by 14% in Q2, says Reuters poll

Investors cut allocations to hedge funds by 14% between April and June this year, and more than doubled investments in the safest alternative strategies, according to the LJH-Reuters poll of hedge fund managers.

Between April and June, investors put $1.2 billion into hedge funds, compared with the $1.4 billion invested in the first three months of 2003. The cut came as stock markets gathered momentum for a double-digit rally and traditional long-only investments outperformed their hedge fund competitors.

The survey by LJH Global Investments and Reuters polled 64 US-based hedge funds about the allocations of their domestic and international clients. The findings highlight a change in investor appetite triggered by a quick end to the Iraq war and signs of recovery in the US economy.

In the second quarter, investors put the bulk of their money, $714 million, into equity hedge funds, down from $878.8 million the previous quarter. But they put nothing into convertible arbitrage funds after adding $88 million in the first quarter.

The survey revealed that most of the money going into hedge funds came from institutional investors, which contributed $480 million compared with $352.6 million in the first quarter. Funds of funds added $383 million in the second quarter, while pension funds added only $19 million, a reduction from $100 million in the first quarter.

Suzanne Murphy, a managing director at Acorn Partners, said: “There is a perception that hedge funds have under-performed and when you have a big upward move, people will look more to ‘long-only’ investments.”

Further evidence of a shift away from risk strategies was also evident in the way money was allocated to hedge funds, with $212 million going to multi-strategy hedge funds, which offer investors a greater selection of investment styles and spread risks.

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