Opalesque Industry Update - Dramatic Shift in Sources of Capital for Hedge Funds in the Last Decade|
Hennessee Group LLC, an adviser to hedge fund investors, estimates that hedge fund industry assets increased by $751 billion in 2009 to $1.96 trillion. To avoid double counting, fund of fund assets are not included in the asset growth analysis but are included as “Sources of Capital” for managers. The jump in assets represents a +62% increase since the beginning of 2009 and leaves industry assets at their pre-crisis levels in 2007. Preliminary results indicate that the hedge fund industry experienced net inflows of $448 billion (+37%) in 2009. The amount of inflows ($448 billion) represents the largest inflow of assets in the hedge fund history and is a dramatic reversal compared to the -20% decline in asset flows in 2008 ($399 billion). The remaining $302 billion (+25%) gain in assets was the result of positive performance as the Hennessee Hedge Fund Index jumped +24.6% in 2009, the best annual gain since 1999.
“Despite many of the well publicized challenges the industry faced entering 2009, particularly after the Madoff scandal, the industry was able persevere and experienced +37% in new asset growth over the full year period,” said Mr. Charles Gradante, Co-Founder of Hennessee Group. “New assets are coming from the traditional long-only side; in part due to the horrendous losses in 2008 coupled with an improved comfort level with hedge funds for those institutions with 10 or more years experience in hedge funds.” (See “Lost Decade” Press Release January 19, 2010).
“A noteworthy development in our 2009 research is the decline in fund of hedge fund assets and continued rise in direct investor assets, predominantly by pensions, endowments and foundations,” said E. Lee Hennessee, Managing Principal of Hennessee Group. “A trend we believe that could continue into the future due to lower fees in direct investing and a move to more active fiduciary oversight (UPIA and ERISA).”
See chart “Hedge fund industry assets (in billions)” here.
HEDGE FUND SOURCES OF CAPITAL
Hennessee Group Research finds that “Fund of Hedge Funds” remain the single largest source of capital for hedge funds at 29% of industry capital. Of those that invest directly into hedge funds: individuals/family offices are at 26%; pensions represent 19%; endowments/foundations represent 14% and corporations represent 12%. This is in sharp contrast to the Hennessee Group Manager Survey a decade ago (2000) when individuals/family offices represented 53%; fund of funds represented +20%, pensions represented 9%; endowments/foundations represented 7% and corporations represented 12%.
Total assets for arbitrage and event driven funds were up approximately +44% in 2009. The Hennessee Arbitrage/Event Driven Index (which includes distressed) gained +30.8% for the year. Arbitrage and event driven strategies were able to take advantage of the massive deleveraging and forced liquidations in 2008, and generate outsized gains in 2009 as stability returned to t
he financial markets. The arbitrage and event driven space experienced the greatest inflows for the year. Total assets for long/short equity funds increased approximately +32% in 2009, with +10.6% coming from new assets and +21.4% through performance. The Hennessee Long/Short Equity Index rose +21.4% in 2009. Long/short equity funds most willing to take on heightened directional risk were most rewarded as the equity markets experienced a strong, broad based rally.
Total assets for global/macro funds rose +29% in 2009, with +4.4% coming from new assets and +24.6% through performance. The Hennessee Global/Macro Index gained +24.6% for the year. Global/Macro funds benefited from strong international equity markets, particularly the emerging markets. In addition, macro managers generated profits in short positions in the U.S. dollar and treasuries, and long positions in oil and gold. Macro managers also took advantage of historically low rates, particularly in the U.S., to profit from the carry trade.