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The funds of hedge funds industry shrank by nearly 30% in 2008. Volatile markets, zero liquidity, and year-end average returns of -16.63% led to the asset outflows for the global funds of funds industry, according to the latest survey of the InvestHedge Billion Dollar Club.
The largest funds of funds – those with more than $1 billion in assets under management – now control a combined amount of $744 billion in assets, according to the 2008 asset flow survey carried out by InvestHedge, the leading publication about investors in hedge funds.
“The industry has taken a serious beating but it is not an industry that is on the brink of extinction. The multi-manager approach and professional selection of hedge funds is still very much essential for the creation of a healthy hedge fund portfolio,” says Niki Natarajan, editor of InvestHedge. “What has happened is that the barriers to entry have finally gone up and only those that are serious representatives of the funds of funds industry will win the institutional money.”
“This clear-out was necessary as there were too many sloppy practices in the industry. Everyone, large or small, good or bad, will be going back to the drawing board to make sure that their business can stand the highest level of scrutiny.”
There are now 137 funds of hedge fund management companies in the InvestHedge Billion Dollar Club and if the assets of the smaller 420 or so funds of funds management companies are also included, this universe still manages roughly half the assets of the hedge fund industry (which currently measures about $1.8 trillion in all according to the latest HedgeFund Intelligence data). Some 27 groups fell out of the rankings after shutting their businesses or the assets falling below the $1 billion level.
UBS Global Asset Management A&Q with total assets of $34 billion regained the top slot in the rankings having lost in the mid-year survey to Union Bancaire Privée, which now has $33 billion in total assets. If the assets of UBS Wealth Management USA are added in, UBS has a total of $36.8 billion, making the largest hedge fund of fund management group in the world.
Man Group, which includes RMF Investment Management, Glenwood Capital Investments and Man Global Strategies, now has a total of $26.6 billion, taking its global position as a group to 4th in the rankings after HSBC, which has $31.9 billion.
Top 10 largest Funds of Funds
31 December 2008
Assets $bn
UBS Global Asset Management A&Q 34.00
Union Bancaire Privée 33.00
HSBC Alternative Investments 31.88
Permal Investment Management 24.40
Blackstone Alternative Asset Management 23.65
Goldman Sachs Asset Management 23.50
Credit Suisse 21.90
Grosvenor Capital Management 20.50
RMF 19.30
GAM Multi-Manager 18.40
Total
250.53
Source: InvestHedge
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HedgeFund Intelligence is the biggest provider of hedge fund news and data in the world, with the largest and most knowledgeable editorial and research teams of any hedge fund information provider. We supply data on more than 11,000 funds and comprehensive news and insight from across the globe. Through four regional brands – Absolute Return, EuroHedge, AsiaHedge, AfricaHedge – and InvestHedge, which focuses on investors in hedge funds – we provide news and data to the global hedge fund industry.
Reuters – In a period when volatile markets battered most hedge funds, global macro funds are proving their worth, Graham Capital Chairman Kenneth Tropin told Reuters.
During one of the hedge fund industry’s worst years, Graham delivered gains of up to 41 percent in 2008 by making good bets on currencies, stocks, interest rates and commodities. And because the firm invests in highly liquid futures, clients had monthly access to cash even as many funds blocked withdrawals.
The combination of liquidity and returns that are independent of the broader market could revive interest in global macro funds, Tropin said.
"For a long time there was a perception that the biggest returns, the best risk-adjusted returns, were in other strategies. Then we had a market environment last year where most hedge fund styles ended up being correlated to each other and to the equity markets as well," he said.
Graham manages $4.9 billion in assets in human-directed funds and computer-driven quantitative funds. Funds in both categories invest across fixed income, currency, commodity and equity futures.
"Our style of investing offers some benefits, including liquidity and diversification, that may have not been appreciated as much as they should be," he said.
Graham’s quant funds gained from 20 percent to 41 percent last year, while human-directed funds rose by 6 to 27 percent. By comparison, the average hedge fund lost 28 percent.
Dow Jones Deutschland – While hedge funds suffer from redemptions and closures amid volatile markets, some firms are taking advantage of falling valuations and market dislocations to launch new funds.
Mark Fuchs, chief executive of Singapore-based Fuchs Capital Partners, said in an interview with Dow Jones Newswires that he is launching a hedge fund focused on trading blue-chip, large-capitalized Southeast Asian stocks in the region in two months.
Fuchs, the former head of Credit Suisse Group’s (CS) Southeast Asia equities division, has teamed up with two other Southeast Asian veterans: Winston Loke, who was previously Credit Suisse’s Chief Operating Officer for Asia-Pacific ex-Japan, Australia equities and Mark Maroongroge, most recently a portfolio manager with London-based hedge fund HBK Capital Management. He declined to elaborate on the size of the fund, however, other than to say it will start off "modest" in size but would eventually be "significant."
New York (HedgeCo.Net) – At a time when most investors are becoming increasingly weary of high risk hedge funds, public pension funds are upping their stake, hoping to make up for recent lackluster performances.
New York State has a cap that limits the amount of alternative investments in the state’s Common Retirement Fund, valued at $153.9 billion. Comptroller Thomas DiNapoli is urging lawmakers to increase that cap, saying that “we need more flexibility.”
The Common Retirement Fund has followed in the footsteps of other lagging pension funds, posting only a 2.6 percent gain for the year ending March 31. As of now, the fund may allocate up to 25 percent of its capital to alternative investments. DiNapoli did not state how much he wanted that number increased.
Public funds manage over $2 trillion in assets and are actively seeking ways to garner larger returns. However, some argue that market conditions are not favorable enough to start taking wild risks with taxpayer money. Alternative Investments may include hedge funds, private equity funds, or anything that invests in real estate and/or commodities such as oil or gold.
One of Amaranth Advisor’s major investors was the state of Massachusetts, who allocated a substantial amount from its Pension Reserves Investment Trust Fund. When the fund imploded thanks to some bad bets magnified by massive amounts of leverage, followed by the closing of Sowood Capital Management the following summer, the state fund was out $80 million.
In Orange County, the Employees’ Retirement System has invested 7% of their assets into the reputable BlackRock, as well as to Pacific Alternative Asset Management Company. The fund of funds will handle over $200 million of assets. In addition, South Carolina may invest over $13 billion of their total assets worth $29 billion in hedge funds and other alternative investment vehicles.
Julie Scuderi Senior Editor for HedgeCo.Net Email: julie@hedgeco.net
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