Hedge fund assets totaled US$2.85 trillion in the first quarter of 2008, down about 1.4% from the prior quarter, according to estimates from HedgeFund.net.

HedgeFund.net reports that new allocations to hedge funds were an estimated US$53 billion during the quarter, but performance losses decreased assets by an estimated US$93.2 billion. As a result, total hedge fund assets experienced a quarterly decrease for the first time on record. The 1.4% decrease in Q1 2008 compares to an increase of 11.5% in the first quarter 2007.

Fund of funds’ assets increased during Q1 2008, despite performance losses as new allocations were the second highest in almost four years, it noted. Total assets in funds of funds increased 1.1% to an estimated US$1.4 trillion. Performance losses of US$57.2 billion were offset by new allocations of an estimated US$71.85 billion, an indication that large institutions continued to increase exposure to the hedge fund industry through funds of funds.

The firm also noted that funds focusing on fixed income markets saw net increases in new allocations, whereas funds focusing on equities experienced a net decrease in assets due to redemptions from existing funds. “This is an indication investors see greater opportunity in fixed income markets in 2008,” it said. New allocations increased total asset levels in fixed income funds by 4.8%, but performance losses resulted in total estimated assets increasing only 3.6% to US$554.8 billion. Equity focused fund assets fell 0.6% due to redemptions. With performance losses, total assets in equity focused funds fell 5.4% in Q1 2008 to an estimated US$1.04 trillion.

Emerging market hedge funds experienced their largest drop on record in Q1 2008, as total asset levels fell 5.5% due entirely to performance losses estimated at US$27.8 billion. However, assets in funds focusing in Latin America experienced the largest percentage gain of any region in the quarter, as total asset levels rose 29.8% to an estimated US$21.3 billion due to new fund launches and new allocations to existing funds. Funds focusing on emerging Europe had total asset levels drop 10.4% to an estimated US$92.7 billion due entirely to performance losses of US$11.5 billion.

CTA/Managed Futures funds produced the best average performance in Q1 2008 and total asset levels increased 15.3% in Q1 to an estimated US$196.0 billion as a result. Meanwhile, energy sector fund assets experienced their largest drop on record in Q1, as total assets fell 12.8% to an estimated US$122.2 billion due mostly to performance losses of US$12.9 billion.