Institutional investors were a significant force behind record high net inflows to hedge funds in the second quarter.
Investors of all kinds sunk a net $43.3 billion into hedge funds, a quarterly record, according to data from the TASS Research service of Tremont Capital Management Inc., Rye, N.Y. That's up 13% from first-quarter net inflows of $38.2 billion. It represents the fifth consecutive quarter of record inflows. TASS' Asset Flow Report is based on data from 4,881 hedge funds, of which 2,886 still are in existence.
In fact, the blistering pace of hedge fund investment during the first six months of this year totaled a net $81.5 billion, already topping the $72.2 billion of net inflows that TASS researchers estimated came in during all of 2003. Factoring in market appreciation, TASS researchers estimated total hedge fund industry assets were $1.1 trillion for the quarter ended June 30, a whopping 41.3% increase from the $800 billion total asset estimate for the second quarter 2003.
Institutional investors accounted for at least $15.1 billion of hedge fund inflows and commitments in the second quarter alone. That figure is based on a quick calculation by Pensions & Investments of reported searches, hires and additional contributions to existing managers, all where the mandate size was known.
In the first quarter, institutional investor flows or commitments to hedge funds and hedge funds of funds were close to $2.9 billion, for a six-month total of $17.9 billion. That's undoubtedly a low estimate, because the mandate size isn't known for many reported searches.
Among the first-time entrants are:
• The $19 billion pension plan of Versorgungskasse des Bankgewerbes, Berlin, which is considering a $1.9 billion mandate;
• The $10.5 billion Illinois State Board of Investment, Chicago, which made a $525 million allocation;
• The $11.5 billion New Mexico State Investment Council, Santa Fe, which committed $350 million commitment; and
• The $32.6 billion Massachusetts Pension Reserves Investment Management Board, Boston, which committed $325 million each to five fund-of-funds managers: Arden Asset Management Inc., New York; K2 Advisors LLC, Stamford, Conn.; Pacific Alternative Asset Management Co., Irvine, Calif.; Ivy Asset Management, Garden City, N.Y.; and Silver Creek Partners LLC, Seattle.
Contract negotiations with Silver Creek later fell apart over price and PRIM staff now are searching for a replacement. Trustees at MassPRIM originally intended to make direct hedge fund investments but changed their minds and shifted to funds of funds.