Industry Updates

Assets for new funds declined 35% in 2008 as Absolute Return says investors stayed on the sideline

Friday, February 06, 2009

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From Komfie Manalo, Opalesque Asia: Hedge fund magazine Absolute Return said on Thursday that 2008 was a tough year for new hedge funds as assets for new launches fell 35% compared with the previous year.

Carolyn Sargent, deputy editor at Absolute Return said: "With these results, it's no surprise that 2008 is being dubbed hedge funds' worst year.” She added that turbulent markets, big losses, fund closures and the Bernard Madoff scandal have put investor loyalty to the test.

“Most investors are staying on the sideline, but those who are allocating capital can demand more favorable investment terms,” she added.

At the end of 2008, only 55 funds were launched with assets under management of $50m each, compared with 81 in 2007. From January to June, 35 new hedge funds were launched with more than $50m in assets under management totaling a combined $19.5bn.

The report said the financial crisis prompted investors to convert their holdings to cash, and faced unexpected disruption to their trading strategies, including temporary bans on selling stock short.

A Reuters report said the largest fund launches in the U.S. raised $23.2bn in assets last year, less than the $31.5bn raised by the largest new funds in 2007 and the $31bn collected in 2006.

Notably, only six new funds collected more than $1bn in 2008, down from eight funds in 2007. The two new funds launched by Goldman Sachs Group Inc. raised $8.1bn.

According to the New York Times, the other new funds to raise more than $1bn included Appaloosa Management’s Thoroughbred fund, with $1.9bn; Lone Pine Capital’s Lone Dragon emerging markets fund, with $1.8bn; and Highliner Investment Group’s $1bn market-neutral equity Alyeska fund.

Both Appaloosa and Lone Pine run other portfolios and are well-known in the industry. This signals that investors were more willing to invest with established firms than newcomers.

Several hedge-fund research groups have said hedge funds declined a record 36% last year and are likely in for another tough year in 2009. Hedge Fund Research Inc. said investors withdrew a record $155bn in 2008, as industry assets returned to 2006 levels. According to HedgeFund.net, hedge funds assets declined to $1.84tn last year because of the global economic crisis and investor withdrawals and fund liquidations.

The New York-based HedgeFund.net said hedge funds lost $512bn through withdrawals and fund closures, while performance losses totaled $535bn last year. The group added that in December alone, withdrawals and liquidations totaled $221bn.

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