Hedge Fund Growth May Be Slowing

by Carla Johnson, Investors Offshore, London

13 May 2002

The boom in hedge fund formations and investment that took place in 2001 may be slowing down, according to a report from researcher Freeman & Co. The firm recorded 33 new hedge fund launches in the first quarter of 2002, down from 47 in the last quarter of 2001, although still more than double the number launched a year previously. New launches are more likely to be by individual managers, said Freeman, rather than larger institutions.

According to Van Hedge Fund Advisors International, Inc., the average US hedge fund gained an estimated 0.6% net in April, after gaining 1.4% net over the first three months of 2002. Most stock markets lost in April. Market neutral hedge funds appeared to be top performers in April, according to Van Hedge.

Meanwhile, it seems that hedge funds have massively increased their exposure to the Japanese economy. A report by Ferenc Sanderson, an independent consultant for Daiwa Securities, estimates that hedge funds have invested US$29bn in Japan and account for 4% per cent of trading on the Tokyo Stock Exchange, still low compared the US and Europe, where hedge fund activity amounts to 10 to 15%.

Mr Sanderson surveyed 5,000 funds, and found that 400 of them had invested in Japan. According to the report, long/short equity funds are the largest participants, followed by those with convertible arbitrage, event-driven and global macroeconomic strategies.

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