Hedge Fund Launches Grow In Number And Size

Jul 7 2010 | 1:13pm ET

Twice as many new hedge funds raised three times as much money from investors in the first half of this year as compared to the first half of last year.

All told, funds launching between January and June netted $10.9 billion, according to AR magazine’s biannual New Funds Survey. In the first half of last year, new  hedge funds managed to raise just $3.9 billion, an all-time low.

Most of the money was raised by a pair of spin-offs and three new funds launched by established funds. Overland Advisors garnered $3.6 billion for its spin-off from Wells Fargo, most of the money from Wells Fargo itself. Former Citigroup energy trader Andrew Hall’s Astenback Capital Management—a joint venture with new partners Occidental Petroleum—raised $1.2 billion, while new funds from Highbridge Capital Management, Paulson & Co. and Alden Global Capital each netted about $500 million, according to AR.

All told, 43 new funds debuted with at least $25 million. And the good times are expected to continue, according to a new survey.

More than 80% of respondents to Rothstein Kass’ fourth-annual hedge fund industry trends survey expect more launches this year than last. A similar number expect as many or fewer hedge funds to close their doors this year. And more than 67% of those hedge funds that are already in business plan fundraising pushes this year.

While the new launches are expected to continue, seven in 10 respondents think they’ll be smaller and more reliant on seed capital than hedge fund launches prior to the credit crisis.

“While nearly 70 percent of hedge fund professionals we polled still expect 2010 to be a difficult year, there are signs that conditions continue to improve,” Howard Altman, co-CEO of Rothstein Kass, said. “However, it is clear that the crisis has had a profound impact on the sector and its practices. Stung by fundamental misunderstandings regarding the nature and objectives of hedge fund capital pools, the community has responded by taking steps to offer greater transparency and enhance educational initiatives.”

In particular, 80% said hedge funds will use significantly less leverage and 58% expect pressure from investors to lead to lower fees. Almost 77% said they expect increased regulation of hedge funds, with almost half predicting those new rules will come into force this year.

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