New Money Toward Venture Funds Plunges

Well-heeled investors are continuing to turn away from venture-capital funds, while increasingly turning to hedge funds.

The amount of new money committed to U.S. venture-capital funds plunged 68% in the second quarter, to $9.7 billion from $30.3 billion in the same period a year earlier, the National Venture Capital Assn. and research firm Venture Economics said Monday.

The second-quarter commitments also represented a 42% drop from the $16.7 billion in money raised in the first quarter, according to the report.

Meanwhile, hedge funds worldwide attracted $8.4 billion in net cash inflows in the second quarter, marking the biggest quarterly injection since at least 1994, a report Monday from Tass Research in London said.

Venture-capital funds invest in fledgling companies. Hedge funds, by contrast, can employ any of a variety of investment strategies, including “shorting” stocks, a bet on falling share prices.

Many venture funds have fallen on hard times with the crash in the technology sector. By contrast, hedge funds’ popularity has zoomed as investors have hunted for new strategies amid weak stock markets worldwide.