Credit crunch tempers hedge fund launches

Date: Tuesday, February 5, 2008
Author: Stephanie Baum, Financial News

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.