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Bloomberg – The global hedge-fund industry lost $64 billion of assets in November, with an index tracking its performance declining for a sixth month as economies in Asia and Europe joined the U.S. in recession, Eurekahedge Pte said.
“It’s very clear that there is going to be significant consolidation in the hedge-fund industry,” said Duncan Smith, a partner in Hong Kong at Ogier, a firm that provides corporate and legal services to financial companies. “Conditions are quite difficult and that really goes without saying. Underlying liquidity is very hard for funds.”
Market declines contributed to $18 billion in net losses, while investor redemptions made up $46 billion, Singapore-based Eurekahedge said, based on preliminary figures taken from 41 percent of the funds it surveys. It said hedge-fund assets shrank by $110 billion to $1.65 trillion in October.
Bloomberg - The global hedge-fund industry lost $64 billion of assets in November, with an index tracking its performance declining for a sixth month as economies in Asia and Europe joined the U.S. in recession, Eurekahedge Pte said.
“It’s very clear that there is going to be significant consolidation in the hedge-fund industry,” said Duncan Smith, a partner in Hong Kong at Ogier, a firm that provides corporate and legal services to financial companies. “Conditions are quite difficult and that really goes without saying. Underlying liquidity is very hard for funds.”
Market declines contributed to $18 billion in net losses, while investor redemptions made up $46 billion, Singapore-based Eurekahedge said, based on preliminary figures taken from 41 percent of the funds it surveys. It said hedge-fund assets shrank by $110 billion to $1.65 trillion in October.
Bloomberg – The financial crisis is imposing heavy burdens on the hedge-fund industry, and the strain has become more visible. By the end of last week, about 100 hedge funds imposed restrictions on withdrawals. Many funds have become financial roach motels: Investors can put their money in, but they can’t get it out.
Deregulation has taken a lot of blame for this financial crisis, but an interesting footnote is that the lightly regulated hedge-fund industry has stayed healthy enough to avoid the bailout game.
But are rising redemptions a sign that hedge funds may need a handout, too?
It’s small wonder that some funds have decided to put the brakes on. Morgan Stanley estimates that redemption requests are running at 15 percent to 30 percent of total hedge-fund assets.
Bloomberg – There’s not a lot of light in Paulson & Co.’s 28th-floor headquarters on a drizzly November afternoon. The Alexander Calder sculpture and multicolored prints have been shipped to the firm’s new offices six blocks south. Darkness envelops the New York skyline.
The Dow Industrials have lost a total of 929 points over two days, and the jobless rate is poised to hit 6.5 percent. And John Paulson, who oversees $36 billion in hedge fund assets, isn’t exactly Mr. Sunshine either.
“You have deterioration in almost every asset class,” Paulson says. “You’re looking at declines in housing prices, the health of manufacturers and the earnings of various companies. There are rising delinquencies in auto loans and commercial real estate.”
Bloomberg – Hedge-fund assets may fall to about $1 trillion by the middle of next year, a decline of almost 50 percent from their peak in June, because of market losses and client withdrawals, Citigroup Inc. said in a report.
Managers are likely to see investors, led by funds of funds, pull 20 percent of their money, Tobias Levkovich, an analyst at the New York-based bank, wrote yesterday. Funds of funds are middlemen who select hedge funds for their clients.
“The so-called `Swiss hot money’ wants out and funds are responding,” Levkovich wrote, referring to Swiss investors who have a shorter investing period than pension funds. “Citi’s credit analysts estimate that hedge funds have raised cash to roughly 40% of assets already in anticipation of known redemptions and possibly unanticipated demands from investors.”
Hedge funds lost an average of 16 percent this year through October, according to data compiled by Hedge Fund Research Inc., as stock and commodity markets tumbled and lending tightened. The industry has lost money in only one year — a 1.45 percent decline in 2002 — since the Chicago-based firm began tracking returns in 1990.
Straits Times – Hedge fund assets fell by US$100 billion (S$151 billion) in October as investors withdrew their money and funds were forced to sell stock, exacerbating the severe volatility that pounded global markets during the month.
About US$60 billion of the US$100 billion in asset losses during the month came from investor redemptions, according to a report on Wednesday released by Eurekahedge, a data and research provider.
Hedge funds’ assets totalled US$2.497 trillion at the end of the third quarter, according to HedgeFund.net, a hedge fund data provider.
Hedge fund selling has widely cited as one of the reasons for the increase in volatility in equity and bond markets during October.
Reuters – The Hedge Fund Standards Board, the body set up to develop voluntary standards in the industry, said on Wednesday it now represents about half of hedge fund assets in Europe.
The announcement comes as hedge funds attempt to head off tougher regulation in the wake of turmoil in the global financial system.
The industry has come under intense scrutiny, most notably for the impact of short-selling employed by many managers. In September, regulators in the U.S. and Europe imposed a temporary ban on shorting financial stocks.
Ten new signatories to the HFSB include Blackrock Investment Management UK, New Star Asset Management and Sabre Fund Management. They join 14 existing members including Man Group Plc, the world’s largest hedge fund manager, GLG Partners and Marshall Wace.
International Herald Tribune – As world markets shudder, the hedge funds based in London, once the toast of the city’s flashy financial elite and magnets for cosmopolitan capital, have stumbled badly.
The increasingly global sweep of the credit crunch and the collapse of Lehman Brothers have punished all manner of hedge funds – secretive investment pools that rely on generous lenders and a high tolerance for risk to thrive.
But in London, where a number have already shuttered, the hedge fund retreat has a pointed resonance. Along with celebrity chefs, Russian oligarchs and Italian soccer coaches, hedge funds that established operations here in the past decade have been seen as a mark of London’s hip new spirit of decadent cool – a notion reinforced by the pound’s long period of strength and the boom in home prices.
Now, the failure of Lehman Brothers, which had deep financial relationships with some of the largest hedge funds in the world, has unsettled an already jittery market – sparking fears that some hedge fund assets might be frozen there and thus be unavailable for sale if investors choose to redeem them.
Wall Street Journal – In another sign of the changing power dynamics between hedge funds and their investors, funds are offering to cut fees if investors agree to stay put.
Camulos Capital LP in a letter last week asked its investors to promise to keep nearly $2 billion in place with the firm for another year as part of a restructuring. Camulos, the letter said, will take a 1.25% management fee, instead of the standard 2% fee, on most assets. If the fund makes money starting Oct. 1 through 2010, the firm will keep 10% of most profits, not the 20% that is typical of hedge funds and that Camulos investors previously agreed to pay, the letter said.
Meanwhile, Ore Hill Partners LLC, a New York money manager with about $2.8 billion in hedge-fund assets, also told clients it is ready to deal. It offered a sliding scale of fees depending on how long investors would commit money to its Ore Hill International Fund Ltd.
With returns lower this year at many hedge funds, there has been much talk of investors demanding better terms. But until now, there have been few reports of hedge funds actually changing their model.
Lowering fees can make it hard for funds to keep top analysts and traders, who often are paid out of profits, and it can undercut a fund’s prestige. Just last year, investors were begging to get into hot funds. But with hedge funds having their worst year in nearly two decades, investors are getting antsy.
A new report released Monday by HedgeFund.net estimates the assets under management by hedge funds have reached nearly $3 trillion.
According to the report, hedge fund assets increased 4.41 percent last quarter, in spite of rough equity markets, to reach $2.973 trillion. The report combined data from a bi-annual survey of hedge fund administrators and information from HedgeFund.net’s database of more than 8,400 funds.
Peter Laurelli, vice president of Channel Capital Group which owns HedgeFund.net, said hedge fund assets will probably top $3 trillion sometime in the next couple of quarters, depending on performance.
Fund performance accounted for $91.28 billion being added to hedge funds last quarter, while investors placed an additional $34.21 billion in new assets with hedge funds. One dark spot for the industry was that liquidations of funds last quarter exceeded assets in newly established funds by $8.52 billion. Second quarter saw the third-highest level of hedge fund closures on record.
"It’s a natural evolution of the industry if you have funds that are not performing well," Laurelli said. "When you go through a period like we’ve had where there have been some large losses in the industry, you’re going to have fund closures. That doesn’t mean that the industry is contracting, it just means that there is some turnover."
Wealth Bulletin- US hedge funds keen to support their European client bases are looking at expansion into London. Institutional Credit Partners Capital and Silver Creek have made the move.
Despite predictions that the UK’s non-domiciled tax regime would lead to hedge funds migrating to other European destinations, London remains the hedge fund centre of Europe, handling some 75% of Europe’s $300bn hedge fund assets.
Setting up in the UK poses challenges for unwary US firms – and those coming unprepared may be in for a rude awakening. US hedge funds are generally accustomed to an “employment at will” legal system – hiring and compensating employees without formal written agreements and firing them without any reason (bar discriminatory ones) or any form of prior disciplinary action or dismissal procedure. This is not the case in the UK.
FINalternatives- Global hedge fund assets under management increased 30% in 2007 to a record $2.25 trillion, according to a new International Financial Services report.
Most of this growth was in the first three quarters, as market turbulence in the latter part of the year resulted in a slowdown in inflow of new funds and a decline in average returns.
New York remained the leading global location for hedge fund managers, with 40% of global assets, but its share was down from 50% in 2002 as growth of the hedge fund industry in Europe and Asia outpaced growth in the U.S. This was largely a result of a rise in institutional portfolio allocation into hedge funds in these regions during this period.
