Study: Hedge Fund, P.E. Assets Keep Dropping

Jul 13 2009 | 10:32am ET

Hedge fund assets are unlikely to return to their peak over the next four years, according to a new report.

Despite some signs that investors are returning to the asset class, hedge fund assets under management have further to fall, according to a new report from the McKinsey Global Institute. Hedge fund, which managed $1.2 trillion at the end of last year, will manage just about $1 billion by the end of this year.

Beginning next year, hedge fund assets will start to grow again, according to the report, “The New Power Brokers.” McKinsey predicts that the industry will add assets at a compound annualized rate of 10% through 2013, bringing industry assets to $1.5 trillion, still below the $1.7 trillion it managed less than two years ago. What’s more, that rate of growth is less than half that enjoyed by hedge funds before the credit crisis; the industry grew by a compound annual rate of 23% between 2003 and 2007.

The McKinsey report also shows just how dramatically leverage has declined. Total investible hedge fund assets have fallen to $2.4 trillion, just over a third of the $6.6 trillion they invested one year ago. Total investible assets add borrowing and leverage through derivatives to assets under management.

Private equity funds are doing substantially better in terms of assets under management, although the McKinsey report also indicates that the p.e. industry has been battered by losses. P.E. funds have raised $1.25 trillion over the five years to the end of 2008, up from $900 billion over the same period to 2007. Buyout funds also boast some $535 billion in dry powder.

But McKinsey also estimates that the economic crisis has taken a serious toll on p.e. funds. Its study suggests that the $1.25 trillion raised over the last five years is worth just $900 billion today.


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