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Fund flows: Record $195 billion flows in during 2007

Net inflows into hedge funds in 2007 were higher than 2006 levels in spite of turbulent markets.

According to research by HFR, the hedge fund industry attracted a record $194.5 billion in new investor capital in 2007. Inflows for 2006 were $126.5 billion.

Third quarter down

Inflows in the fourth quarter, however, were smaller than those in the previous three quarters. Only $30.4 billion of new money came in from September to the end of December 2007 as investors awaited more market clarity.

Average industry returns on the whole for 2007 were slightly above 10%. Emerging markets showed the best performance, returning more than 25% for the year. Short-selling strategies led in the fourth quarter. A head of capital introduction at a prime brokerage in New York says that investors are showing increasing interest in short-biased managers. "Long/short guys had a great run but much of their performance was made of beta. We expect investors to allocate away from long/short managers towards more directional strategies, in particular, short sellers."

"It was another record year for hedge funds when it came to attracting new assets in spite of the slower pace in the fourth quarter," says Kenneth Heinz, president of HFR. Heinz notes that there are now more than 10,000 hedge funds in the industry.

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