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Hedge fund assets reach record levels in Q1

Investors poured billions of dollars into hedge funds in the first quarter, helping to send total industry assets into record territory, data released Thursday shows.

Investors allocated a net $16 billion US to hedge funds in the first three months of the year, according to Hedge Fund Research, which tracks industry flows and performance.

With the new capital, as well as average gains of about 5 percent for hedge funds in the first quarter, total industry assets reached $2.13 trillion, HFR found. An earlier record was set halfway through 2011, when total capital invested with hedge fund managers hit $2.04 trillion.

In one of its worst annual performances in history, hedge funds lost about 5 percent in 2011. However, the industry seemed to get its groove back in the beginning of 2012 as global equity and credit markets rallied, and managers recorded the best first quarter of performance in five years.

"Investors responded favorably to the risk shifting which occurred across financial markets in the first quarter," said Kenneth J. Heinz, President of HFR. "Sophisticated institutional investors are increasingly allocating to hedge funds as a powerful strategic portfolio complement to existing traditional holdings."

Investors sent most new capital to hedge funds with fixed income-based Relative Value or Macro strategies, which saw inflows of $12.4 billion and $7.8 billion respectively.

Meanwhile, equity hedge funds experienced redemptions of $2.9 billion, and Event Driven funds also saw withdrawals of $940 million.

Investors preferred managers with assets greater than $5 billion in the last quarter. Those firms saw inflows of $18.3 billion in new capital, while investors pulled $2 billion from hedge funds with less than $5 billion in assets during the first quarter.

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