12/12/2008

Hedge fund assets drop 5% in six months

11th Biannual HFMWeek Hedge Fund Administration Survey

The global down-turn, poor performance and investor redemptions have conspired to slash hedge fund assets by 5% over the past six months, according to HFMWeek’s latest Hedge Fund Administrator’s Survey.

The survey’s sixty-nine respondents have reported near industry-wide negative growth, with single-manager assets under administration (AUA) dropping from $2.9tr to $2.7tr since April – a loss of $142.46bn.

Although the industry losses are significant, the survey sits at the lower end of the more dire predictions for the sector. According to Hedge Fund Research investors pulled $40bn from the $1.5tr hedge fund industry in October alone, while market losses cut industry assets by $115bn.

HFMWeek’s own figures include asset levels up until the end the October, but do not encompass November’s poor performance figures or the expected results of the year’s final redemption dates. Many of the administrators surveyed expect the situation to worsen by year end.

Citco’s William Keunen noted the 5% drop in overall industry AUA is only the beginning. “Some commentators have predicted a 50% fall in AUA, we are currently projecting 25% peak to trough by the end of the year,” he said.

Citco Fund Services, historically the largest hedge fund administrator, has for the first time posted a 6% loss in asset size. The firm’s $482bn assets under administration dropped to $455bn over the last six months.
Despite wide-spread losses, some administrators have fared well. Some even continue to grow as admin businesses, despite the decline of the wider sector.

Consolidation has been one of the ongoing trends driving the growth of the industry for some time. Most recently, Butterfield Fund Services consolidated with Fulcrum to form the Butterfield Fulcrum Group; together making up the 15th largest administrator of single manager hedge fund assets with $44bn in AUA.

With investors likely to continue to redeem from hedge funds and fund of hedge funds (FoHF) over the next few months, Charlie Woolnough, European regional director, Fortis Prime Fund Solutions, believes that in the short term, conditions are likely to worsen for most. “The first wave of redemptions was really due to performance issues and general market conditions, but the next wave will be due to a scramble for liquidity and a desire to re-allocate assets to new strategies by investors,” he said.

However, he believes conditions will eventually pick-up. “Following a low point sometime next year, we believe that performance will start to improve over the subsequent period. Inevitably, economic crises such as the one that we are currently facing result in mis-pricings of assets, which hedge funds have been excellent at exploiting in the past. This time around the industry will face less competition from investment banks and other hedge funds,” he said.

Click here to download full PDFs of Part One of the survey and here for Part Two of the survey.