
Today, we present several recent news stories that never made it into a post here at AllAboutAlpha.com. Taken together, they suggest that predicting the future of the hedge fund industry is more complex than some have argued…
Not the end of the line for hedge funds after all?
The reputed demise of funds of hedge funds is exaggerated: Asian Investor reports that “Ironically, the market turmoil coupled with hedge fund implosions and swindles make it an easier task for funds of hedge funds analysts to separate the wheat from the chaff.”
UN fund eyes hedge funds, private equity: Apparently, not everyone is shunning alternative investments…
Returns mark out hedge funds’ stellar performers: The FT recently raises questions about some hedge fund predictions, saying “Several analysts have predicted that the hedge fund industry might not survive this financial crisis. Even George Soros, the billionaire hedge fund manager, predicted late last year that hedge fund assets would fall by 75 per cent. But funds across a variety of investment strategies managed impressive double-digit returns last year…”
2008 “Hedge Fund 100″: Institutional Investor reports that despite high profile draw downs at large hedge funds, the top 10 aren’t doing too badly after all. Says the magazine, “Climbing in aggregate to record heights, the world’s ten biggest hedge funds controlled $324 billion in capital, up 29%…”
Hedge fund attrition: How bad?
Hedge funds, battered in ‘08, brace for more pain: Business Week notes that “roughly one in 10 hedge funds will have disappeared last year when final numbers are released in coming weeks.” But what they don’t point out is that this number is pretty unremarkable. Studies have shown hedge fund attrition to range from 5% to nearly 17% (also see this FAJ piece - Table 7). The big story from 2008 is that new fund launched were down - not that funds were closing that much more frequently that usual.
(Mutual) Fund liquidations may reach record: You might expect mutual funds to be somewhat more stable. But according to Investment News, “…359 funds were liquidated last year, compared with 257 in 2007, a 39.6% increase, according to the Denver-based research firm Lipper Inc.”
Hedge Fund AUM Drop: How far?
Hedge fund withdrawals top $269bn in 2008: “…Hedge fund assets fell to $998.4 billion in December 2008 as a result of redemptions and poor performance. In December 2007 assets totalled $1.92 trillion. This is the first time industry assets fell below $1 trillion since July 2004 when they were $976.7 billion.”
Meanwhile, Bloomberg reports that “Hedge-fund assets fell a record 36 percent to $1.84 trillion in 2008 as tumbling global markets prompted investor withdrawals and fund liquidations, according to industry researcher HedgeFund.net.”
Post Madoff marketing, regulation, and industry structure
Hedge Fund Marketing Challenges in the Recessionary, Post-Madoff Environment: “…Today, more than ever, success in attracting investors is dependent upon a hedge fund’s ability to educate and persuade people to be aware of, and buy into, how it invests.”
Fear Of Hedge-Fund Fraud, Meltdown To Spur Debate On Rules: Morningstar reports that hedge fund regulators have traditionally focused on investor protection. But now “The newer concern has been financial stability.” (Although we notes that it seems one recent $50 billion blow up hasn’t had much of an impact on the financial system.)
2009 Global Asset Management M&A Activity to be Paced by Divestitures, Distress Sales: Hedge fund consolidation to continue, says Putnam Lovell.
Still, “millionaires”, “institutions”, and buyers of hedge fund IPOs licking wounds
Wealthy Wary of Putting New Money in Hedge Funds: The bad news: “Millionaires who long put money with hedge funds are now skittish about adding fresh cash.” The good news: We have probably seen the worst of the [hedge fund industry redemptions]…”
Smart Money Takes a Dive on Alternative Assets: The WSJ’s Jason Zweig cites Larry Seigel’s view that “…Institutions used to rely upon bonds to generate income. But if you sell your bonds to make room in the portfolio for alternative assets, what is left to sell when you need to raise cash for capital calls and to fund your operating budget?”
Investors joining hedge fund club get burned: Buried deep in this article about tanking hedge fund stocks is this light at the end of the tunnel, “Analysts covering Och-Ziff this week cut their profit forecasts, although many also forecast redemptions would ease and that Och’s strong relative performance and reputation would bring investors back.”
Hedge Funds Will Be Ruined by Withdrawal Limits: At least one columnist is really peeved about redemption gates, writing “By forcing investors to keep their money tied up during a bad year, the hedge funds are damaging their own reputation, and it may well never recover.” Problem is that a portion of investors often want their co-investors’ feet held to the fire with theirs. So managers may be damned if they do and damned if they don’t.