HF Asset Levels Much Higher, Administrators Report |
Date: Monday, July 23, 2007
Author: Chidem Kurdas and Bill McIntosh, HedgeWorld
NEW YORK (HedgeWorld.com)—Estimates of
worldwide hedge fund assets have always varied by provider and
methodology, since there is no single database that includes all hedge
funds.
A Deutsche Bank study in January 2007 put investments in hedge funds at
$1.4 trillion. Lipper TASS reported $1.5 trillion at the end of
December 2006. (Lipper, part of Reuters, is the parent company of
HedgeWorld.) HedgeFund Intelligence put hedge fund assets at $2.079
trillion in January 2007. But there's been growth since these reports.
Now, a survey of fund administrators has come up with an estimate of as
much as $3.5 trillion. That number sounds too high. Around $1.9 to $2
trillion is the ballpark figure one most often hears, for example
recently at a Merrill Lynch capital introduction meeting in London.
The new estimate by Carbon360 Research, an affiliate of
CarbonBased Consulting Inc., is based on information about assets under
administration from 74 hedge fund administrators. Ralph Lafferty,
research analyst at Carbon, said the estimate comes from a larger
sample than other estimates.
The 74 administrators are just about the entire market, so the number
is larger because it covers more of the industry, he argued.
Combined assets administered by these firms were $2.72
trillion. But that represents only part of the industry because some
funds do not have an outside administrator. Carbon found that in many
more esoteric strategies, a high percentage of hedge fund assets are
self-administered.
To calculate these self-administered assets, Carbon estimated
from the Lipper TASS database that approximately 10% of managers are
self-administered and these control 25% to 30% of all hedge fund
assets, accounting for an additional $680 billion to $810 billion.
With that, the asset total comes to between $3.4 trillion and $3.5
trillion as of the end of first quarter 2007. That may sound high but
looks right, said Mr. Lafferty. Reported fund of funds assets were at
$1.05 trillion, but were not included in the total to avoid double
counting.
If these estimates are accurate and leverage on average is,
say, two to three times capital, hedge funds could be trading from
around $6.8 trillion to more than $10 trillion in various financial
markets. That is truly a big presence, but divided between many markets
the effect on any single one would be less sizable.