Hedge fund assets fell in the first two months of 2009 by 9%, largely due to redemptions, and are likely to fall by over 20% this year, according to a new report from the International Financial Services London.
The non-for-profit agency’s annual hedge funds report indicates that the surge in withdrawals at the start of the year came as restrictions on redemptions in some hedge funds, particularly in the U.S., were lifted.
After a decade of growth averaging around 20% a year, assets under management of the global hedge fund industry fell by nearly 30% in 2008 to US$1.5 trillion, according to the IFSL. The decline, the biggest on record, was due in equal measure to negative performance and withdrawals.
The average hedge fund lost 15.7% in 2008, the worst performance on record. Nearly three quarters of hedge funds and 85% of funds of hedge funds lost money during the year. The bulk of losses came between September and November. Main contributors to the losses included the collapse of banks in the U.S. and Europe, falls in equity markets, a ban on short-selling and pressure to liquidate positions to meet margin and redemption calls.
Hedge funds returned 13.2% of assets to investors in 2008. This rise in redemptions was due to losses, risk aversion and reputational damage inflicted by the Bernard Madoff fraud. This is only the second time in the past two decades that the industry has suffered an annual net outflow of funds. The positive inflows during the first half of the year were more than offset by outflows in the second half. The third and fourth quarters of 2008 set consecutive records in the value of quarterly redemptions.
New York remains the leading global location for management of hedge fund assets with a 42% share in 2008, slightly up on the previous year due to bigger redemptions in Europe. London is the second largest centre with 18%, nearly double its share in 2002.
“The 900 hedge funds located in London managed around US$260 billion in 2008, or four-fifths of the assets of hedge funds based in Europe,” said Marko Maslakovic, senior economist at IFSL. “Despite the global slowdown, the inherent structural advantages which have long attracted hedge funds to London remain in place, including its reservoir of local expertise and its accessibility to clients.”
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Hedge Funds 2009 -- IFSL Research