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Results of 2007 PerTrac Hedge Fund Database Study

Date: Wednesday, March 5, 2008
Author: Pertrac.com

Results of 2007 PerTrac Hedge Fund Database Study

Show 14.5% Increase in Hedge Fund Reporting, While Fund Launches Slow

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New YorkMarch 4, 2008 –  PerTrac Financial Solutions (PerTrac) today announced the aggregate results of the 2007 PerTrac Hedge Fund Database Study, revealing that there was a 14.5% increase in the number of hedge funds and funds of hedge funds reporting to hedge fund databases since the 2006 study.

“Investors and industry watchers will be interested to learn that the number of distinct hedge funds and funds of hedge funds we were able to identify in aggregated hedge fund databases in 2007, with duplicate funds removed, increased by 14.5% from the prior year,” said Meredith Jones, managing director of PerTrac.

“The number of single manager hedge funds increased by 11%, while the number of funds of hedge funds increased by 21%,” Ms. Jones added. “This increase in the number of reporting funds means that alternative investment industry participants are able to access more performance, strategy and fund information than ever before, which should translate into better investment decisions and more efficient capital raising efforts, not to mention improved transparency.”

The study, released annually since 2003, has become a widely-followed indicator of the size and composition of the hedge fund industry.  The 2007 study was conducted using data from eleven major hedge fund databases, combined and analyzed with the PerTrac Analytical Platform, the  leading investment analysis and asset allocation software application.

Key Findings of the 2007 PerTrac Hedge Fund Database Study
The 2007 PerTrac Hedge Fund Database Study found a total of over 54,000 investment records across all databases, including both single manager hedge funds and funds of hedge funds (FOFs).  Records are the total number of funds and fund classes in all databases, including all duplicate records.

Within the overall collection of more than 54,000 records, the PerTrac Analytical Platform revealed approximately 22,650 “distinct” hedge funds and fund of funds among the various hedge fund databases, once duplicate records were removed. This figure counts individual classes within funds as distinct investments.

Other key findings include: 

  • Approximately 21,000 distinct funds reported performance data in 2007.
  • Approximately 15,250 single manager hedge funds were identified, and approximately 7,400 FOFs were identified. This compares with 13,675 single manager hedge funds and 6,100 FOFs identified in the 2006 study.
  • Just over 4,600 distinct fund management companies (e.g., general partners) were counted. Related fund management companies (subsidiaries, etc.), where identifiable as such, were counted as a single fund company.
  • Of the 15,250 single manager hedge funds, approximately 13,900 reported performance in 2007. Of those, approximately 34% were onshore (U.S. domiciled) funds and 66% were offshore (non-U.S. domiciled).
  • About 35% of identified single manager funds were domiciled onshore (in the U.S.) while about 65% were domiciled offshore. Among FOFs, approximately 13% were domiciled onshore while 87% were offshore.

Assets under Management by Single Manager Funds Top $2 Trillion, $980 Billion Flows through Funds of Hedge Funds
Single manager funds in the databases account for approximately USD 2.1 trillion under management.  More than 350 funds have surpassed the USD 1 billion mark. Meanwhile, over 40% of single manager funds continue to manage less than USD 25 million (see chart). 

Approximately 8,750 of the single manager funds appear to be ‘clones’ of another fund, meaning that they trade pari passu, either as offshore funds, super-accredited (3(c)7) funds or separate share classes (usually differing in currency denomination) of a single fund strategy.  (See graph below.)

Assets Under Management in Single Manager Hedge Funds

There were approximately 7,400 different FOFs that appeared in the study, of which 7,100 had reported performance numbers in 2007. Of those FOFs which had reported last year, about 13% were domiciled onshore and 87% were offshore. There appears to be about USD 980 billion invested into hedge funds through FOFs, although more than a third of them manage less than USD 25 million. (See graph below.)

Assets Under Management in Funds of Funds

Among the 22,650 distinct investments identified in the study, approximately 2,050 of them appear to be managed by Commodity Trading Advisors (CTAs). These managers’ funds or investment programs typically trade mainly futures and currencies. Reported assets among these investments totaled approximately USD 320 billion.

Few Funds Report to More than Two or Three out of Eleven Databases
“As with prior years’ studies, PerTrac noted significant overlap between the various databases,” said Ms. Jones. “However, as the graph below shows, despite overlap between and widespread growth among the databases, relatively few hedge funds and funds of hedge funds report to more than two or three databases, and only one fund reports to all eleven databases. In fact, a significant number of hedge funds and FOFs, about 12,000 in the eleven-database sample, appeared only in a single database. This averages out to nearly 1,100 “exclusive” funds in each database, underscoring the importance of accessing multiple data sources when conducting serious hedge fund screening and analysis. And, as the number of databases declines, the need for multiple databases is further underscored. In fact, adding even one additional database can boost the number of funds available for screening, analysis and peer comparisons by as much as 40 percent.”

How Many Databases Do Funds Report To?

Launches of New Funds Fell Markedly in 2006
While the hedge fund universe continues to grow, it appears to be growing at a slower rate in recent years compared to the dramatic growth of the late 1990s and early 2000s. The number of new fund launches, for both single manager funds and funds of hedge funds, fell sharply in 2006. (Figures for 2007 fund launches are not considered reliable indicators and are not disclosed here because many newly launched funds do not begin reporting to databases prior to their one year anniversary.)

Nearly 5,050 single manager hedge funds started in 2006. Although it is a sizeable number of start-ups, it represents a steep 26.4% decrease in fund launches from 2005, when approximately 6,850 new single manager funds launched. That figured represented a 3.6% uptick from 2004. 

Launches of new FOFs fell off dramatically for the second consecutive year in 2006. About 2,250 new FOFs started in 2006, a decrease of 22.2% from 2005, when nearly 2,900 new FOFs launched. The 2005 figure marked a 24.8% decrease from 2004.

“While hedge funds and funds of funds represent an increasingly important segment of the investment universe, and the number of funds reporting to databases and assets under management for those funds have continued to increase, the numbers of new funds launches have slowed,” noted Jones. “Given the extraordinary growth rates of new fund launches in earlier years, the slow-down in launch rates was probably inevitable as the industry matured. In addition, the decrease in new fund launches reflects the asset flow trends in the industry since, in many cases, assets flow to larger, established hedge funds and funds of funds, which is somewhat of a deterrent for new entrants into the marketplace.”

Number of New Single Manager Hedge Funds by Year

*Numbers of new funds have not been adjusted to account for survivor bias.

Number of New Funds of Funds by Year

*Numbers of new funds have not been adjusted to account for survivor bias.

The Eleven Databases in the PerTrac 2007 Hedge Fund Database Study
The databases included in the study were Barclay Hedge Fund DataFeeder, Barclay CTA DataFeeder, CASAM CISDM, CogentHedge, Eurekahedge Global Hedge Fund Database, Eurekahedge Global Fund of Funds Database, HedgeFund.net from Channel Capital Group, Hedge Fund Research, Lipper TASS, Morningstar (formerly Altvest), and the MSCI Hedge Fund Indices & Database(SM). The study tagged duplicate fund records, CTAs, funds of funds and clone funds using various analytical and statistical methods, and the data was manipulated in a number of ways to yield aggregate information on the hedge fund universe.

About the PerTrac 2007 Hedge Fund Database Study
The PerTrac Hedge Fund Database Study is part of an ongoing effort to provide high quality aggregate investment information to PerTrac clients and the general public. The study was completed using the PerTrac ID feature in the PerTrac Analytical Platform. PerTrac IDs allow users to combine two or more databases from different data vendors and easily create a universe of unique funds, based on the PerTrac ID, hiding duplicate records based upon the users’ chosen data vendor priority.  PerTrac users gain the benefit of having multiple databases and a larger data sample without having to manually identify duplicate records.  They also can easily toggle between data sources to access the full complement of information available on each fund, which often varies between data vendors even when the same fund is referenced.

About PerTrac Financial Solutions
PerTrac Financial Solutions was founded in 1996 with the goal of creating a comprehensive suite of software solutions for investment professionals. The company’s flagship product, the PerTrac Analytical Platform, rapidly became the world’s leading asset allocation and investment analysis software. Now an industry standard, PerTrac is used by more than 1,700 clients in 50 countries, including banks, brokerage firms, consultants, plan sponsors, family offices, investment managers and funds of funds. PerTrac CMS, which was part of its January 2006 acquisition of Whittaker Garnier, is another major component of the PerTrac Suite. It is the investment industry's leading tool for managing the client relationships and workflow associated with capital raising, investor relations, and investment management, used by nearly 300 alternative investment firms around the world. In January 2008, PerTrac announced the release of PerTrac Portfolio Manager, a unique software application designed to help funds of funds and institutional investors create, monitor and manage multi-manager portfolios of alternative investments. Developed with leading hedge funds of funds firms in both the US and Europe, PerTrac Portfolio Manager is a key element of the PerTrac Suite. PerTrac Financial Solutions is headquartered in New York with offices in London, Hong Kong, Reno, Memphis and Tokyo. For additional information on the full suite of PerTrac products, please visit www.pertrac.com.