Hedge Fund Assets Total USD2.8tn

by Phillip Morton, Investors Offshore.com

26 May 2008

HedgeFund.net (HFN) on Wednesday released its first quarter 2008 Hedge Fund Asset Flows and Performance Report, which estimates that total hedge fund assets fell 1.4% in Q1 2008 to USD2.848tn.

The release is concurrent to the release of the HFN Q1 2008 Administrator Survey, which shows total administered hedge fund assets were USD2.759tn in Q1. The combination of results from these two reports confirms HFN's belief that hedge fund assets are significantly greater than commonly reported.

New allocations to hedge funds were an estimated USD53.02bn during the quarter, and performance losses decreased assets by an estimated USD93.18bn, resulting in total hedge fund assets experiencing a quarterly decrease for the first time on record. The 1.4% decrease in Q1 2008 compares to an increase of 11.5% in the first quarter of 2007.

Fund of funds’ assets increased during Q1 2008, despite performance losses as new allocations were the second highest in almost four years. Total assets in funds of funds increased 1.1% to an estimated USD1.404tn.

Performance losses of USD57.19bn were offset by new allocations of an estimated USD71.85bn, an indication that large institutions continued to increase exposure to the hedge fund industry through funds of funds.

Allocations between fixed income versus equity focused funds showed interesting trends in investor sentiment in Q1 2008. Funds focusing on fixed income markets saw net increases in new allocations while funds focusing on equities experienced a net decrease in assets from redemptions from existing funds.

According to HFN, this is an indication that investors see greater opportunity in fixed income markets in 2008. New allocations increased total asset levels in fixed income funds by 4.8%, but performance losses resulted in total estimated assets increasing only 3.6% to USD554.79 bn.

Equity focused fund assets fell 0.6% due to redemptions. With performance losses, total assets in equity focused funds fell 5.4% in Q1 2008 to an estimated USD1.038tn.

Emerging market hedge funds experienced their largest drop on record in Q1 2008. Total asset levels fell 5.5% in Q1 due entirely to performance losses estimated at USD27.80bn.

New allocations of USD9.45bn resulted in organic growth (asset growth independent of performance gains or losses) of 2.9%. This is greater than the near zero organic growth in Q4 2007, but well below the quarterly historical average rate of 8.3%.

Total assets in funds focusing in Latin America experienced the largest percentage gain of any region in Q1 2008. Total asset levels rose 29.8% to an estimated USD21.28bn due to new fund launches and new allocations to existing funds which contributed an estimated USD5.11bn to funds focusing on the region. LatAm funds were the best performing regionally focused EM funds in Q1 2008.

Funds focusing on emerging Europe had total asset levels drop 10.4% to an estimated USD92.73bn due entirely to performance losses of USD11.50bn. New allocations of USD700mn were the lowest in the last four quarters. MENA focused fund assets experienced organic growth of 13.5% in Q1 2008 as an estimated USD529mn in new allocations helped increase total asset levels in MENA focused funds 8.4% in Q1 2008 to an estimated USD4.26bn.

Despite equal weighted average returns from distressed funds being negative in Q1 2008, good performance from larger funds helped total asset levels in the strategy to rise. Performance gains along with new allocations of USD6.04bn resulted in total assets in distressed funds rising 3.3% in Q1 2008 to an estimated USD252.32bn. Organic growth during the quarter of 2.0% is well below the historical average of 7.0% and record Q1 2007 growth of 16.3%.

CTA/Managed Futures funds produced the best average performance in Q1 2008 and total asset level increases surged from this growth. Total asset levels in CTA/Managed Futures funds increased 15.3% in Q1 to an estimated USD196.03bn. New allocations of USD10.2bn were the second largest quarterly increase in new allocations on record. Organic growth during the quarter was 5.7%, well above the historical average rate of 3.4%.

Energy sector fund assets experienced their largest drop on record in Q1 2008. Total assets fell 12.8% to an estimated USD122.20bn due mostly to performance losses of USD12.91bn. Net redemptions and liquidations resulted in an additional USD5.05bn exiting energy sector funds in Q1. Redemptions were likely the result of large monthly loses in the sector in November 2007 and January 2008. The average energy sector fund was down 5.4% in Q1 2008.

Recommended