European hedge fund launches hit a record

Date: Thursday, March 8, 2007
Author: Christine Seib, TimesOnLine

New European hedge funds raised a record $37.7 billion (£19.5 billion) in assets last year as heightened corporate activity encouraged investors to pour money into funds that take bets on mergers and acquisitions.

There were 423 new funds launched in Europe last year, with 250 opening in the second half of the year.

Almost $8.5 billion went into 27 event-driven funds, which specialise in arbitraging takeover situations.

Thirty macro funds raised $1.9 billion, while $5.4 billlion in assets went into global equity funds and $5.7 billion into European equity.

But yesterday BH Macro, the first hedge fund to list on the main London Stock Exchange, downgraded by at least €200 million (£135 million) the amount it expected to raise at Friday’s flotation after recent stock market turbulence caused investors to shy away.

Brevan Howard, the $13 billion fund manager listing the fund, had aimed to raise at least €1 billion but sources said yesterday that the bookrunners had raised closer to €550 million. The final figure was likely to be between €600 million and €800 million.

Funds raised by BH Macro will go into Brevan Howard’s master fund, an $11.3 billion global macro fund. Global macro funds analyse economic trends around the world to make bets on market movements.

Macro funds had been among the most popular launches of 2005, with $3 billion raised by 23 new funds.

Nick Evans, editor of Euro-hedge, which conducted the survey on new fund launches, said that a couple of large event-driven start-ups — the $3 billion SRM Global, $2 billion Cevian Capital II and $1.1 billion Montrica Global Opportunities — skewed this year’s figures towards that strategy.

“The high level of corporate activity meant that there’s more for them to get involved in,” he said. “It’s difficult to predict what will be big next year.”

The volatility of global markets last week is unlikely to make a dent on 2007’s new fund launch figures, experts said. “Hedge funds typically thrive on volatility,” one source said. “Volatility is good because it reminds investors that there are risks in the markets and that there are opportunities with hedge funds.”

However, the source added that there might be a slight slowdown in launches as institutional investors are favouring investing in established funds.