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Hedge fund numbers may decline


Date: Friday, September 14, 2007
Author: Bloomberg, Mumbai

The number of hedge funds may fall after last month’s turmoil in equity and credit markets shook confidence in the industry, said the head of alternative investment strategies at Commerzbank AG.  “The events of August may be one of the triggers leading to a cut in the number of hedge funds,’’ London-based Mehraj Mattoo said in an interview. He was attending a hedge fund conference in Hong Kong this week.  “There are signs that a bubble is forming in the hedge funds industry after the huge growth we’ve seen the past few years.’’

ON A SLUMP



  • Hedge-fund assets worldwide almost tripled in the past five years to $1.75 trillion as of June as stock markets rebounded from a two- year slump and commodities soared

  • An index tracking the performance of hedge funds globally fell 1.8 percent in August, paring gains this year to 8 per cent

  • Hedge funds typically charge fees of 1 percent to 2 percent of assets and 20 percent of investment gains

  • The number of hedge funds grew by more than two-thirds in 2006, according to a February survey by Pertrac Financial Solutions

  • The New York City-based financial software company found more than 13,600 firms in 2006, and 4,900 hedge-fund managers, up from 3,500 in 2005.

Hedge-fund assets worldwide almost tripled in the past five years to $1.75 trillion as of June, according to Chicago-based Hedge Fund Research Inc., as stock markets rebounded from a two- year slump and commodities soared. The explosion created multibillion-dollar fortunes for some of the biggest managers, including Renaissance Technologies Corp.’s James Simons.  An index tracking the performance of hedge funds globally fell 1.8 per cent in August, paring gains this year to 8 per cent, according to Eurekahedge, a Singapore-based research company. That was the worst performance since May last year.  Hedge funds are largely unregulated investment pools that can bet on falling as well as rising asset prices. Their managers gain substantially from profits on money invested. Hedge funds typically charge fees of 1 percent to 2 percent of assets and 20 per cent of investment gains.  The number of hedge funds grew by more than two-thirds in 2006, according to a February survey by Pertrac Financial Solutions. The New York City-based financial software company found more than 13,600 firms in 2006, and 4,900 hedge-fund managers, up from 3,500 in 2005.  Last month’s market turmoil caught some of the biggest names in the industry. Goldman Sachs Group’s Global Alpha hedge fund fell 22.5 percent in August, its biggest monthly decline, on losses from currency and stock trades, according to an update sent to investors.  Red Kite Metals, the world’s largest hedge fund dedicated to metals, slumped 20 per cent in August and Old Lane LP, the hedge-fund firm acquired two months ago by Citigroup Inc., lost 5.9 percent.  The proliferation of hedge funds in past years may lead to an erosion of fees, the head of Renaissance’s European unit, Stefano Russo, said yesterday. Renaissance Institutional Management (UK) Ltd. plans to start a fund that charges a 1 percent management fee and 10 percent on returns.