Hedge fund assets swell, mainly due to performance

BOSTON, Feb 28 (Reuters) - Hedge fund industry assets grew 17.5 percent to $1.4 trillion in 2006, extending the growth of recent years as more money flowed into these loosely regulated portfolios and the managers performed well, new data show.

According to a report released on Wednesday by New York consultants Hennessee Group, strong returns at the world's estimated 9,800 hedge funds were the main driver of growth.

Preliminary data show total industry assets swelled by $215 billion. Stripping out new money, performance alone added $140 billion, or 11.4 percent growth. The industry's assets have now nearly doubled in three years, the data show.

In 2005, hedge fund industry assets had increased by $121 billion, or 12 percent, with performance growing the assets by 8 percent.

Some analysts believe the hedge fund investment frenzy has peaked. The funds took in $75 billion in new money last year, contributing to 6.1 percent asset growth. In 2005, investors added $40 billion in new money, or 4 percent growth in assets.

Both numbers are far below the 19 percent growth from new money seen in 2004 and the 34 percent rate in 2001.

Wealthy individuals are still the industry's biggest investors, contributing 40 percent of capital. Public and private pension funds contribute only 11 percent of capital.

Last year the bulk of money flowed to multi-strategy arbitrage funds even though Amaranth Advisors, one of the world's biggest hedge funds, collapsed amid roughly $6 billion of losses.

Funds with a long/short equity strategy saw assets grow 10.5 percent last year, but all that came from performance, the consultants said. Hedge fund managers said it was relatively easy to make money pursuing a long/short strategy last year as the stock market hit a string of highs.