Funds of hedge funds shrink by 30% in year

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Funds of hedge funds shrink by 30% in year
By Anuj Gangahar in New York

Published: March 10 2009 22:19 | Last updated: March 10 2009 22:19

The funds of hedge funds industry shrank by almost 30 per cent last year, with most of the losses coming in the latter part of the year as volatile markets, poor returns and the impact of the Bernie Madoff scandal took their toll.

More than $1,000bn in assets was held in funds of hedge funds in June last year but, by the end of the year, about $300bn had flowed out of the industry.

Mar-08Hedge fund to close after run of redemptions - Mar-06Funds face further redemptions - Mar-05Fund plans third-party checks - Mar-01Lex: Hedge funds - Mar-02More than 27 fund of funds groups that ran more than $1bn either closed or had their assets fall below the $1bn level last year, according to the latest survey by InvestHedge, the industry publication.

Year-end average returns at funds of hedge funds of -16.63 per cent alongside the actual and reputational damage inflicted by the Madoff scandal led to the asset outflows for the industry. Funds of hedge funds typically invest money in a range of hedge funds on behalf of themselves and investors, in an effort to gain diversified exposure to a range of funds and, in theory, limit their losses as a result.

Niki Natarajan, editor of InvestHedge, said: “What has happened is that the barriers to entry have finally gone up and only those that are serious representatives of the funds of funds industry will win the institutional money. This clear-out was necessary as there were too many sloppy practices in the industry.”

UBS Global Asset Management, with total assets of $34bn, regained the top slot in the year-end funds of hedge funds rankings, having lost out in a mid-year survey last year to Union Bancaire Privée, which now has $33bn in total assets.

If the assets of UBS Wealth Management USA are added in, UBS has a total of $36.8bn, making the largest hedge fund of fund management group in the world.

Man Group, which includes RMF Investment Management, Glenwood Capital Investments and Man Global Strategies, now has $26.6bn, taking its global position as a group to 4th in the rankings after HSBC, which has $31.9bn.

Separately, hedge funds may cut 20,000 workers worldwide this year, a record 14 per cent of the industry’s jobs, as investment losses and client withdrawals erode fees, according to the Options Group, an executive search company.

The dismissals will come on top of the 10,000 jobs that disappeared last year at the investment partnerships. Employment peaked at 155,000 in 2007, and has since dropped to about 145,000, the firm said.

It estimated that by the end of this year, employment was likely to stand at 125,000.
Copyright The Financial Times Limited 2009

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