Hedge fund of funds' assets fall by $200bn

Date: Tuesday, August 25, 2009
Author: Louise Armitstead, Telegraph

Investors pulled an estimated $200bn (122bn) from the hedge fund of funds sector from September 2008 to June this year, representing a 30pc drop in assets.


While many individual hedge funds have seen inflows recover in the first half of this year, a study of the top 50 hedge fund of funds in the world found that all except two players have seen significant falls in assets since September 2008 which had not been recovered by June.

The research, by The Hedge Fund Journal and Newedge Prime Brokerage, found that assets in the sector were $530bn at the end of June, down from a peak of $825bn. The industry magazine said the figures revealed a "transformational crisis" that had "come as a shock" to a sector that had grown at a rate of more than 20pc a year between 2000 and 2008.

While the survey found that "most funds" had lost an average of between 25pc and 30pc of their assets, some had lost far more. Many of the biggest losers were the operations within investment banks. HSBC's Alternative Investments division shrank 51.9pc, from $46.3bn to $22.3bn; UBS's Alternative and Quantitative Investments fell 32.6pc, from $46.6bn to $31.4bn; and Goldman Sachs Hedge fund strategies was down 24.7pc, from $23.9bn to $18bn.

The biggest specialist managers also suffered heavy redemptions: Permal Asset Management dropped 48.9pc, from $36.6bn to $18.7bn, and Man Investments fell 46.4pc, from $42.9bn to $23bn. All of these remain top-10 players in the world.

The only two hedge fund of funds that saw inflows were Blackstone, which grew its operations 25pc, from $20bn to $25bn, and Grovesnor Capital Management, up 1pc from $20bn to $21bn. The hedge fund sector as a whole suffered last year as a combination of the market turmoil and high levels of gearing resulted in its worst performance for a decade. In addition, a sudden aversion to risk and a need for liquidity led to a scramble by investors to withdraw money, causing some funds to collapse.

Hedge fund of funds have been hit twice by redemptions both directly and in the funds they invest in. Chicago-based Hedge Fund Research (HFR) has reported that more than 200 funds of hedge funds liquidated in 2009, nearly twice the number of those that closed in the fourth quarter of 2008. However, in recent months some have reported a steady return of inflows, particularly in funds of funds that have restructured and reduced management fees.