Hedge funds see first capital outflows in two years

Tremont’s survey of nearly 3,500 funds found that the category that suffered the largest net outflow during the fourth quarter was long/short equity, losing a net $2.8 billion, followed by event-driven and global macro strategies.

Equity market-neutral strategies gained the most in assets in the fourth quarter, adding $1.3 billion, followed by fixed-income arbitrage, which gained a record $793 million, and managed futures with a record $725 million inflow.

“Once again, hedge fund investors seemed to be rewarding those strategies, such as market-neutral and managed futures, that are non-correlated to major markets and indexes,” said Barry Colvin, chief information officer at Tremont. “In addition, the flight to fixed income continued, reflecting a desire to stay in conservative strategies and protect principal.”

Event-driven and convertible arbitrage strategies were the two most popular investments for the year as a whole, gaining a net $3.4 billion and $3.2 billion, respectively. The only category that suffered a net outflow for the year was dedicated short bias, losing a net $17.4 million.

“Given the uncertainties in the economy and financial markets, 2002 appears to have been a good year for the hedge fund industry,” said Bob Schulman, co-chief executive at Tremont. “While fund flows slowed from the levels achieved in 2001, investors were nevertheless tapping hedge funds as a way to stay involved in the markets.”