Hedge-Fund Assets Rose by $21.4 Billion in August

Date: Thursday, September 24, 2009
Author: Tomoko Yamazaki, Bloomberg.com

Hedge-fund assets increased by $21.4 billion in August as managers completed their best year- to-date return in almost 10 years, driven by rising stock markets amid signs of economic recovery, Eurekahedge Pte said.

Assets grew for a fourth straight month, adding about $100 billion, the largest sustained growth period since the end of 2007, the Singapore-based research firm said in a report posted on its Web site. Net inflows into the industry totaled $12.6 billion in August, while gains through performance were $8.8 billion, bringing total assets under management to $1.38 trillion, the firm said.

A rebound in global stock markets has helped hedge funds record their best first eight months since 2000, after managers posted their worst year on record in 2008. The Eurekahedge Hedge Fund Index, tracking more than 2,000 funds, gained 1.3 percent in August, as the MSCI World Index of 23 developed nations advanced 3.9 percent in the month.

“We believe the worst of the crisis has now passed and markets are slowly returning to more normal levels of functionality and performance,” said Spencer Young, chairman of HFA Holdings Ltd., an Australian hedge-fund manager with A$6.16 billion ($5.4 billion) in assets, in its annual report released today. “We have also seen early signs that the redemption levels we witnessed at the height of the crisis have diminished and we are cautiously optimistic that overall fund flows will stabilize.”

Europe, Relative Value

With the gain in August, the global benchmark is up 13.4 percent so far this year, the best eight-month gain since 2000, Eurekahedge said. Gains during August were supported by economic data such as the reduction in the unemployment rate in the U.S. and return to positive gross domestic product growth rate for some developed countries, Eurekahedge said.

Assets of funds investing in Europe rose 1.8 percent from July to $318.9 billion, the biggest percentage increase among five geographical mandates, the report showed. Manager allocations to Latin America had the smallest increase in assets, gaining just 0.9 percent.

All regions reported inflows, led by Asia excluding Japan, which added $1.4 billion, or 1.5 percent of assets. A sell-off in Chinese equity markets hurt hedge-fund performance in the region and led to a 0.1 percent performance-related drop in assets. China’s Shanghai Composite Index tumbled 22 percent in August, its biggest slide since October 2008, pushing the benchmark into a so-called bear market.

New Funds

By strategy, relative value funds had the biggest percentage gain, rising 3.7 percent, while long-short equity funds reported the biggest absolute gain, with inflows of $4.1 billion and performance-related increases of $2.1 billion.

Recovery in the capital markets has prompted managers to start funds, Eurekahedge said. About 300 funds have started this year through August, while the rate of fund closures continued to slow, with 200 of them shutting since the end of the first quarter, compared with about 600 closures through fourth quarter in 2008 and first quarter this year, the firm said.

Eurekahedge forecasts hedge-fund assets to reach $1.5 trillion by the end of this year.

“Hedge funds have benefited from the recovery in global markets and that’s the biggest reason behind the comeback,” said Hideki Hashiguchi, chairman of the Japan chapter of the Alternative Investment Management Association in Tokyo. “We’re starting to see some of the fund-of-funds investors consider to allocate money back into alternative investments, so it seems like the industry slowly but surely is emerging out of the worst conditions.”

Hedge funds are mostly private pools of capital whose managers participate substantially in the profits from their speculation on whether asset prices will rise or fall.

To contact the reporters on this story: Tomoko Yamazaki in Tokyo at tyamazaki@bloomberg.net