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Credit crunch tempers hedge fund launches

Date: Tuesday, February 5, 2008
Author: Stephanie Baum, Financial News Online-us.com

The largest hedge funds set up last year raised marginally more than those that launched in 2006 as the effects of the credit crunch meant managers took a cautious approach to fundraising and committed more to multi-strategy investing.

A survey by hedge fund publication Absolute Return found that 81 new funds raised a total of $31.5bn (€21.2bn) last year, a slight increase on the previous year’s figure of $31bn from 86 funds. The survey only included new funds with assets of $50m or more.

Of new funds, 51 launched between January and July and ended the year having raised $19.3bn. The 30 additional hedge fund launches in the second half ended the year with $13.8bn.

Multistrategy funds pulled in the most money as hedge fund managers tried to minimize the impact of market volatility on a single strategy. The 18 multi-strategy funds launched last year drew $3.2bn.

Credit strategies produced the second largest amount with nine launches attracting $2.3bn. Paulson & Co’s hedge against the sub-prime mortgage market was the most successful credit strategy fund debut. Its Credit Opportunities II fund assets jumped 2,362% from $130m in its January debut to $3.2bn at the end of the year.

It was one of eight funds to raise over $1bn in assets. Renaissance Institutional Futures Fund was the second biggest launch and finished the year with $3.1bn, a 134% increase on the $1.32bn it started with in October.

Long-short equities were the most popular launch option with 22 new funds that attracted $2.4bn, a 70% drop from 2004 when 34 funds took $8bn.