The Absolute Return New Funds Survey for 2006, published in the February issue of Absolute Return magazine, shows that new hedge fund launches in the U.S. slowed for the second year in a row. Lastyear, the 86 largest hedge fund launches raised $31 billion, down from $34 billion raised by 82 funds during 2005 and $40 billion by 81 funds in 2004.
Most of the launches were in the first six months of the year. But after the equity market meltdown last spring and summer hammered hedge funds, and Amaranth Advisors went bust last fall, raisingmoney got harder for new funds. Only 29 funds raising at least $50 million – the minimum required to be included in the survey – launched during the second half of the year. These funds raised a mere$6.2 billion, or 20% of the total.
For the year, six new funds raised more than $1 billion. The biggest launch of the year, Convexity Capital, set a new record in terms of assets for its $6.3 billion fund launch last February.Convexity was founded by Jack Meyer, the former Harvard University endowment money manager superstar. The second largest launch in 2006 was Old Lane Management’s Old Lane fund launched in April with$3.7 billion. It finished the year with roughly the same amount. The giant multistrategy fund’s founders include Vikram Pandit, John Havens and Guru Ramakrishnan – a high-profile trio from MorganStanley.
Only one of the six launches raising more than $1 billion rolled out in the last two quarters. Dillon Read Capital Management’s Dillon Read Financial Products launched in the fall and finished theyear with $1.3 billion. The new hedge fund platform for UBS was founded by John Costas, who stepped down as the head of UBS’s global investment bank in June 2005 to lead the venture, along withMichael Hutchins and Kenneth Karl.
A closer look at the alpha-pack points to two ongoing themes: Billion-dollar megalaunches are alive and well – but only for the right pedigree. Seven of the top ten launches were new funds byestablished players, more evidence that the big, established names will continue to get bigger. The trend for larger megalaunches in the past few years is likely to continue if institutionalinvestors – pensions and endowments more so than funds of funds – continue to wade into hedge funds.
For the first time in the survey, fixed-income and high-yield funds surpassed equity and multistrategy hedge funds in raising assets, amassing $9.8 billion among 14 funds. Multistrategy funds came insecond with $8.1 billion in 17 funds, down from $11.5 billion in 11 funds last year. Distressed funds took in $1.9 billion in three funds, a huge drop from the $9 billion they garnered through thesame number of launches in 2005.
