GENERAL INDUSTRY CONDITION
New Managers Try Harder | source: moneyscience.com
New or Emerging Fund Managers, defined loosely as those managers who are less than 36 months old, appear to outperform older more established managers by up to 400 basis points per annum. Understanding why this should be that case is not really that difficult when one considers where new hedge funds typically come from. Hedge fund managers are usually drawn from the ranks of institutional prop(rietary) desk traders who are tired with the corporate bureaucracy or whom have hit upon a particularly good trading idea. These managers leave larger organizations, usually banks and asset management houses, to set up on their own as Hedge Funds.
HFR: Hedge fund launches at lowest level in 8 years | source: Infovest21 News
Hurt by the global credit crunch and volatile financial markets, hedge fund launches have slowed to their lowest level in eight years, says Hedge Fund Research.In the first quarter of 2008, 155 single manager funds were liquidated compared with 138 in Q1 2007. Of those liquidated this year, equity hedge accounted for more than 50%. Total funds liquidated in the first quarter of 2008 reached 170. Meanwhile, 247 funds were launched in the first quarter of 2008 compared with 251 in the prior year. Again, equity hedge strategy accounted for more than half of the launches. Global macro funds accounted for another 20% of the new funds.
2005 was the peak year for hedge fund launches and liquidations. That year, 2073 funds were launched while 848 closed. Since then, the trend has been downward even as the industry has grown from $1.1 trillion in 2005 to $1.9 trillion today.According to HFR, investors continue to prefer funds with established track records with significant infrastructure. Hedge fund firms with over $1 billion in assets account for 87% of the total industry assets.
Hedge funds stumble in first half of ’08 | source: CNNMoney.com
Hedge funds delivered their worst performance on record during the first half of 2008, revealing that the industry has not been immune to the broader market turmoil. As a group, hedge funds declined 0.68% through the end of June, and are down 0.75% so far this year, according to numbers published this week by industry tracker Hedge Fund Research. The figures represent the worst first-half of the year performance for the industry since the research group began tracking returns in 1990. While hedge funds’ sluggish performance is troubling for an industry known for delivering sky-high returns year in, year out, the decline is far better than the broader market has fared.
Despite the difficult market climate, hedge funds were still alluring to investors. During the first three months of the year, hedge funds attracted $16.4 billion in net assets. That’s down both from the same period a year ago, when the industry attracted $60.22 billion, and the fourth quarter of 2007 when net asset flows reached $30.46 billion.
Pension Assets in Alternatives up 40% | source: HedgeWorld.com
The inflow of pension assets into alternative investments continued unabated last year. Alternative assets managed on behalf of pension funds by the world’s 99 largest investment managers grew by 40% to $822 billion from $586 billion, according to Watson Wyatt’s Global Alternatives 99 annual survey.
Investcorp Single-Manager Platform Surpasses $2 Billion | source: HedgeWorld.com
A single-manager hedge fund platform set up by Investcorp, the alternative investment manager, has surpassed $2 billion in assets under management since its debut in 2005.
More than 30 institutional investors have allocated to the platform, which has a variety of investing strategies among the six managers on it. Typically Investcorp has provided between $50 million and $100 million in seed capital to each of the managers along with support for marketing and risk management to avoid style drift and other operational concerns.
UniCredit Buys Stake in U.K. Hedge Fund | source: HedgeWorld.com
UniCredit Group, Italy’s biggest bank, has bought a 5% stake in NewSmith Capital Partners LLP, a British asset manager, and will invest a substantial sum in the firm’s eight long/short funds spanning equities, global macro and credit. UniCredit also has bought the firm’s credit advisory business, NewSmith Financial Products. The sale of NSFP sees the staff of 10 headed by T.J. Lim, Glenn Barnes and Kevin Krespi, all of whom joined NewSmith from the credit and derivatives operations of Merrill Lynch & Co. in 2004, move over to UniCredit.
NewSmith launched in 2003 and opened its first fund in 2004. The Welcome Trust, a medical research charity and research funder, seeded the firm with $500 million in early 2006. Since then it has expanded to eight long/short funds and a long-only fund, attracting more than $5 billion in assets. Though the amount UniCredit has agreed to invest in NewSmith’s funds is confidential, Mr. Roy said it was significant” in the context of the firm’s AUM.
London Grows, but New York Still Hedge Funds’ Capital | source: HedgeWorld.com
New York remains the hedge fund capital of the world despite growth in London over the past few years, according to a report from International Financial Services London. New York is still home to 40% of all global hedge fund assets. Another 26% of assets are managed elsewhere in the United States, chiefly in states like Connecticut, California, Illinois and Florida. However, New York’s 40% market share is down from 50% of total hedge fund assets in 2002, with institutional investors allocating greater sums of money to European and Asian hedge funds. Over that same five-year period, London saw total U.K. hedge fund assets double to about 20% of the global market share by the end of 2007, about $400 billion across 1,000 hedge funds.
International Financial Services London’s 2008 Hedge Funds report put worldwide hedge fund assets at about $2.25 trillion as of Dec. 31, 2007, a 30% increase over 2006 and up more than 200% in the last five years. The total number of hedge funds now tops 11,000, with single-manager funds accounting for about 75%, according to IFSL. The rest are funds of hedge funds.
AIMA to Publish Sound Practices Guide | source: HedgeWorld.com
The Alternative Investment Management Association in early 2009 is to publish the world’s first global guide to sound practices for fund of hedge funds managers.The guide is drawing together contributions from some of the world’s leading fund of funds managers. It is to focus on areas including risk management, disclosure to investors, valuation, management of conflicts of interest and operational issues.
“There are currently no dedicated guidelines for fund of hedge funds managers yet the majority of new institutional investors tend to favour this investment route, rather than investing directly in hedge funds,” said Andrew Baker, deputy CEO of AIMA, in a statement. “With established sound practices in place for hedge fund managers and on various hedge fund-related topics, there is a desire to document managers’ activities and responsibilities. The guidelines will demonstrate both the amount of work achieved in this area to date as well as the industry’s continued focus on documenting and enhancing its practices.”
NEW PRODUCTS
Dubai Puts $250 Million in Sharia Hedge Fund Platform | source: HedgeWorld.com
The Dubai Multi Commodities Centre Authority, a government agency in the United Arab Emirates, is seeding five sharia-compliant commodity hedge funds run from the United States with a total of $250 million through the Al Safi Trust alternative investment platform backed by Barclays Capital.
Goldman’s new “A.R.T.” HF-Replication-Mutual-Fund | Source: AllAboutAlpha.com
After launching a “hedge fund replication” index last year, Goldman has now built a mutual fund around it. Goldman Sachs (NYSE:GS) just launched a mutual fund based on its recently-launched hedge fund replication index called the “Absolute Return Tracker” (ART).As the FT reports, the fund aims to highlight how a large proportion of hedge fund returns are just “exotic beta” not true alpha. The underlying theory makes sense. Some of hedge funds’ performance is down to alpha, or fund managers’ skill. For that, for now, you will continue to have to pay fees. But a large amount of it is beta. In other words, it is predictably correlated with various markets. Absolute return managers will tend to cluster around similar asset allocations; it is possible to model this behaviour; and hence it is possible passively to capture a large chunk of the value that absolute return managers deliver, and pay much less for it
LSE, Lehman Start European Dark Pool Platform | source: Reuters
The London Stock Exchange plans to set up a pan-European, off-bourse trading platform with Lehman Brothers, the groups said, to fend off start-up rivals hurting the LSE’s business. The joint venture called Baikal, named after the Russian lake that is the world’s deepest, would offer access to securities across 14 European countries in a so-called dark liquidity trading pool that also offered algorithmic, or computer-driven, trading functions.
Man, Abu Dhabi Launch Gas Capture Fund | source: HedgeWorld.com
A hydrocarbon investment vehicle owned by the Abu Dhabi, United Arab Emirates, government is putting $300 million into a new Man Group plc fund that will invest in projects to capture the flared gas burned off in crude oil production and use it to generate electricity and other products.
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