London loses hedge fund market share to New York

Date: Wednesday, September 30, 2009
Author: Bill McIntosh, The Hedgefund Journal

After six years of gaining market share in the total assets managed by hedge fund managers London has lost share, according to new data from International Financial Services London, a promotional agency for UK financial services.

In 2008, the ISFL estimates that London lost about two percentage points of hedge fund AUM market share, reducing the total to about 18% of global AUM. New York, in comparison, rose about two percentage points to about 43%, marking a second straight year in which it has boosted hedge fund AUM share after six years of decline.

During 2002-2007 ISFL estimates that London doubled its share of global hedge fund AUM. Industry practitioners fear that the share of global AUM may continue to fall owing to two events due in early 2010: the 50% UK income tax rate on high earners and a changing regulatory regime, most notably embodied in the proposed Alternative Investment Fund Managers Directive.

ISFL reports that total hedge funds’ AUM fell by nearly 30% in 2008 to $1.5 billion and forecasts a further fall of 20% in 2009. It blames the record decline on a combination of negative performance, rising redemptions and fund liquidations, while attributing the continued fall in AUM this year to pent-up redemptions from funds that gated or suspended investor withdrawals.

On a regional level, the ISFL said hedge fund redemptions were more responsible for a fall in assets in Europe and emerging markets, while in the US and Japan, losses on investments accounted for a bigger proportion of the decline. Asia saw the highest rate of liquidations. It estimated that the number of hedge funds fell by 10% in 2008 to around 10,000 with most closures coming in the latter part of the year with around three-quarters being single manager hedge funds and the rest fund of funds.

Though London’s global market share fell, its share of European hedge fund investments remained at around 80% with about $300 billion of AUM. Including US hedge funds with an office in Europe, London is estimated to have accounted for 90% of European hedge fund assets.

A possible growth area for London, the ISFL notes, is sovereign wealth funds, which are forecast to double from their current level to $8 trillion by 2015.

 

“London is an important centre in the management of sovereign wealth funds assets, although it is difficult to estimate the size of funds managed there due to lack of precise data,” the ISFL said.

The ISFL estimates that alternative funds totalled around $8 trillion at the end of 2008 globally. In addition to hedge and sovereign wealth funds, the total includes private equity and exchange traded funds.