Hedge assets rose to $1.89 trillion in 2006-report

BOSTON, March 19 (Reuters) - Hedge fund assets rose 24 percent to $1.89 trillion in 2006, driven by new allocations and performance gains, a report showed on Monday.

Hedge funds promise to deliver positive returns in all markets for a higher fee compared with mutual funds. They were once the preserve of wealthy investors but have become popular in recent years with pension funds and other mainstream investors.

Equity-focused hedge fund assets rose 30 percent, or $173 billion, in 2006 to $743 billion. Nearly 70 percent of this increase came from new assets, Institutional Investor News and HedgeFund.net said in the 'Hedge Fund Asset Flows & Trends Report 2006-2007' report.

Assets in fund-of-funds, which invest in several hedge funds, grew 22 percent, or $174 billion, during the year to $953 billion. Of this growth, new allocations accounted for $125.7 billion while performance increased the total assets by an additional $48 billion, the report said.

New allocations of $22.9 billion and $18.2 billion were made in 2006 to emerging market-focused and energy sector-focused hedge funds, respectively, it said.

The report also said Europe was the fastest growing major investment region for most hedge funds in 2006, with total assets in Europe-focused funds rising 46 percent to $276.5 billion.