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Hedge fund take a beating

Date: Friday, March 6, 2009
Author: Andrew Willis, Globe and Mail

The crash of '08 carved almost a trillion dollars out of the global hedge fund industry, as a report released Thursday shows the sector lost a third of its assets in the last half of the year.

Hedge fund assets fell 33 per cent to $1.81 trillion (U.S.) at the end of 2008, from a peak of $2.70-billion at the end of June, according to research on 6,000 fund managers compiled by HedgeFund Intelligence, a leading commentator on the industry.

“The decline in assets under management flows from a mixture of negative performance and net redemptions from the industry,” said HedgeFund Intelligence. The group predicted a further 20 per cent decline in assets this year, as investors continue to pull money from funds that only allow a certain percentage of holdings to be redeemed at any one time.

The average return from funds that this survey measured was a 15 per cent loss in 2008, but as HedgeFund Intelligence pointed out, there was an enormous range of returns last year, including a significant minority of managers who actually made money.

“Despite what was undoubtedly a very difficult year, the overall performance from hedge funds in 2008 was still much better than in equity markets and most other asset classes, and there were many individual funds that delivered excellent (and positive) risk-adjusted returns,” said Neil Wilson, editorial director of HedgeFund Intelligence. “And despite some further redemptions already in the pipeline, with the outlook for global markets still looking uncertain it seems to us that investors will increasingly conclude that many hedge funds will offer better ways to invest money and manage risk than the other alternatives.”

The survey found more than 450 funds shut down worldwide. There are still new funds opening, but the pace has slowed. In the U.S. there were 55 funds launched last year with $50-million or more, There were 81 funds of that sized started in 2007.

Membership in the billion dollar club fell from 395 fund managers in mid-2008 to only 311 funds with assets of $1-billion or more. The combined assets of this group also fell sharply,  from $2.16 trillion to $1.46 trillion.

New York remains the top centre for hedge funds with over 120 ‘Billion Dollar Club' firms and 47-per-cent of the assets of the big money managers. London, in second place, has 65 $1-billion firms with 17 per cent market share of assets.

Here's HedgeFund Intelligence's take on the 10 largest hedge funds:

Firm                                     Assets Under Management (U.S. $ billions)

Bridgewater Associates          $38.6

JPMorgan                             $32.9

Paulson & Co.                       $29.0

D. E. Shaw Group                  $28.6

Brevan Howard                      $26.8

Och-Ziff Capital Management   $22.1

Man AHL                               $22.0

Soros Fund Management          $21.0

Goldman Sachs Asset Management $20.6

= Farallon Capital Management       $20.0

= Renaissance Technologies          $20.0