Hedge Fund Closures Slow In ‘07, Accelerate In ‘08

Mar 27 2008 | 2:00am ET

Last year may have seemed like a rough one for hedge funds, but by at least one metric, things weren’t so bad.

At least 49 U.S. hedge funds, with a total of $18.6 billion in assets, closed their doors in 2007, according to Absolute Return magazine. But that’s a sharp decline from 2006, when 83 hedge funds with more than $35 billion went belly-up. Even excluding the catastrophic collapse of Amaranth Advisors, which managed some $9.1 billion at the time of its natural gas trading debacle, last year was quite a relief from its immediate predecessor.

This year has not started so well, with hedge funds managing $6.66 billion going out of business, including Peloton Partners and Sailfish Capital Partners. If that rate continues, more than $27 billion worth of hedge funds will close their door this year, exceeding 2006’s ex-Amaranth total.

The largest hedge fund deaths last year were the collapse of Sowood Capital Management, which managed some $3 billion, and the closures of Citigroup’s $2.5 billion Tribeca Global Investments and UBS’s $1.5 billion Dillon Read Capital Management. More than half of the top 10 hedge fund extinctions last year—including Bear Stearns’ three entries—went under due to losses in levered credit positions.

Other losers included NorOrdin Investment Management’s $1.2 billion Macro RV Overseas Fund, $1 billion U.S. equity shop Copper Arch Capital, Cantillon Capital Management’s $1 billion U.S. Low Volatility Fund and Merlin BioMed Group’s $900 million International Fund.

By strategy, long/short equity funds—the most numerous of hedge funds—lost more than any other, with 16 buying the farm. But by assets, multi-strategy funds were by far the bigger losers, with $7.3 billion worth of funds calling it quits, compared to just $4 billion for long/short.

The Absolute Return figures include only those hedge funds that at one time have managed at least $25 million.


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