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Hedge funds boom time has ended, says industry researcher

Date: Thursday, February 28, 2008
Author: Miles Costello, Times Online

The explosive growth of European hedge funds came to a sudden halt last year as the impact of the credit crunch and volatile market conditions left the volume of new fund start-ups running at its lowest level for at least seven years.

The slowdown, which was particularly marked in the second half of the year, also hit the amount of assets that funds raised from investors, according to EuroHedge, a provider of data and information on the worldwide market for alternative assets.

This is the first time that the number of fund launches and the amount of capital raised have both fallen since EuroHedge began to compile records in 2000.

As well as underscoring the tough conditions in the investment markets, it could mark the beginning of a tailing off in an industry that has made multimillionaires out of a stream of star managers. Many of them left lucrative investment banking jobs in the City to start up on their own.

In its latest annual survey, EuroHedge said that 370 European hedge funds had opened in 2007, raising assets of $33 billion (£16.6 billion)between them. This was 12.5 per cent down on the 420 funds launched in 2006.

Nick Evans, editor of EuroHedge, said: “It is fair to say there would have been more fund launches if the market had been more benign. It is getting more difficult for pure start-ups in the hedge fund world. There is perhaps less room for the ‘have a go' manager ... The market is becoming more institutional and the bar is being raised. To be viable from launch, you've got to be more operationally efficient than before.”

Mr Evans said that it was too early to predict the extent of any downturn. He said “it is still quite something” to have 370 fund launches in an industry increasingly seen as mature. By comparison, the level of fund closures, at about 100, is “tiny”.

Just over 1,500 hedge funds were operating in Europe in mid-2007, managing $540 billion of assets for private clients and institutional investors, according to EuroHedge.

Last month, hedge fund returns globally fell 2.06 per cent, their third-lowest performance in almost seven years, Hedge Fund Research, a rival provider of market data, said.