New rules for hedge funds

Date: Friday, March 18, 2011
Author: Emily Chasan, Reuters

Money is pouring back into hedge funds, and global assets under management in the industry are nearing their 2008 peak again. But hedge fund investors are allocating their capital differently, and have more power than ever before

Here are some of the numbers behind the shift:

* Investors allocated some $149 billion to them in the fourth quarter of 2010 -- the largest quarterly increase in assets ever recorded, according to Hedge Fund Research. The previous record increase was an inflow of $140 million in the second quarter of 2007.

* With $1.92 trillion in assets under management at the end of last year, the global hedge fund industry is fast headed back toward its all time peak of $1.93 trillion in the second quarter of 2008. It had shrunk to $1.3 trillion in assets in the first-quarter of 2009.

* Investors expect to put some $200 billion into hedge funds in 2011, taking the industry to more than $2 trillion in assets this year, according to a survey by Deutsche Bank this month. But even though money is coming in, it is not arriving from the same sources.

* Half of all households with more than $25 million in net worth had investments in hedge funds last year, compared to just 35 percent in 2007, according to a survey from Spectrem Group.

* Funds of hedge funds, which represented nearly half of hedge fund investors at the peak, are now just about a third of overall hedge fund investors.

* The number of pension plans investing in hedge funds has grown more than 50 percent since 2007. There are now 295 public pension plans that are known to allocate assets to hedge funds, up from 196 in 2007, according to research from hedge fund tracker Preqin this week. The mean amount of assets that pension funds dedicate to hedge fund assets has also climbed from 3.6 percent to 6.6 percent over the same period.

* Hedge fund behemoth Och-Ziff Capital Management, has about $28.4 billion in assets under management, but said on a conference call with investors this month its average management fee is 1.7 percent, below the 2 percent industry standard.

* Over 80 percent of new assets in the hedge fund space were allocated to firms with more than $5 billion in assets under management in 2010, according to Hedge Fund Research.

* In the third quarter of 2010, 260 hedge funds were launched and 168 hedge funds were liquidated, according to Hedge Fund Research. In the fourth quarter of 2008 at the height of the financial crisis, 56 hedge funds were launched and 778 were liquidated.

* SkyBridge Capital, a firm that focuses on seeding new hedge funds, looks at 600 to 700 presentations from funds each year, but only selects three or four of those to fund with $25 million to $50 million investments. Bankers estimate there is only about $2 billion to $3 billion of dedicated seed capital available in the industry.