January 16, 2008 – New York, NY – Hennessee Group LLC, an adviser to hedge fund investors, estimates that hedge fund industry assets increased by $462 billion in 2007 to $1.997 trillion. The increase in assets represents +30% growth over industry assets since the beginning of 2007. Preliminary results indicate that the hedge fund industry experienced net inflows of $278 billion (+18%) in 2007. The remaining $184 billion (+12%) was the result of positive performance, as evidenced by the Hennessee Hedge Fund Index, which advanced +11.6% in 2007. These figures do not include assets invested in fund of hedge funds.
The amount of inflows ($278 billion) represents the largest amount of annual inflows into the industry in its history and a 75% increase over the amount of inflows in 2006 of $159 million. The percentage increase in assets due to inflows (+18.1%) represents the highest level of inflows since 2001.
“2007 was clearly a milestone year for hedge funds,” stated E. Lee Hennessee, Managing Principal of Hennessee Group. “With the exception of two high profile failures in the mortgage and credit space, performance for the industry was excellent, causing institutional investors to further increase their interest in the asset class.”
“Whereas it was relatively easy for new funds to raise capital several years ago, we are seeing higher barriers to entry within the industry today,” continued Charles Gradante, Managing Principal of the Hennessee Group. “Institutional investors increasingly prefer more established players.”
ASSET FLOWS
Total assets for arbitrage and event driven funds were up approximately +35% in 2007. The Hennessee Arbitrage/Event Driven Index advanced +7.8% for the year, as arbitrage strategies were affected by the volatility in the credit markets. The majority of assets flowed to large, multi-strategy funds, as they have been the preferred choice among pensions as they make direct investments in hedge funds.
Total assets for long/short equity funds increased approximately +26% in 2007. The Hennessee Long/Short Equity Index advanced +12.1% in 2007. After experiencing slight outflows from the strategy in 2006, investors became more interested in the strategy in 2007, as returns improved relative to equity indices due to a better environment for short selling.
INVESTOR SOURCES OF CAPITAL
Going into 2008, Hennessee Group estimates that individuals/family offices and fund of hedge funds represent the largest sources of capital for hedge funds, each comprising 31% of total industry capital. Pensions represent another 14% of industry capital, while endowments/foundations represent 12% and corporations represent 12%.
About the Hennessee Group LLC
Hennessee Group LLC is a Registered Investment Adviser that consults direct investors in hedge funds on asset allocation, manager selection, and ongoing monitoring of hedge fund managers. Hennessee Group LLC is not a tracker of hedge funds. The Hennessee Hedge Fund Indices® are for the sole purpose of benchmarking individual hedge fund manager performance. The Hennessee Group does not sell a hedge fund-of-funds product nor does it market individual hedge fund managers. For additional Hennessee Group Press Releases, please visit the Hennessee Group’s website. The Hennessee Group also publishes the Hennessee Hedge Fund Review monthly, which provides a comprehensive hedge fund performance review, statistics, and market analysis; all of which is value added to hedge fund managers and investors alike.
Description of Hennessee Hedge Fund Indices®
The Hennessee Hedge Fund Indices® are calculated from performance data reported to the Hennessee Group by a diversified group of over 1,000 hedge funds. The Hennessee Hedge Fund Index is an equally weighted average of the funds in the Hennessee Hedge Fund Indices®. The funds in the Hennessee Hedge Fund Index are derived from the Hennessee Group’s database of over 3,500 hedge funds and are net of fees and unaudited. Past performance is no guarantee of future returns. ALL RIGHTS RESERVED. This material is for general information only and is not an offer or solicitation to buy or sell any security including any interest in a hedge fund.
