Hedge funds recoup lost assets and return to 2008 levels

Hedge funds recoup lost assets and return to 2008 levels

Hennessee Group has estimated that hedge fund industry assets increased by USD751bn in 2009 to USD1.96trn. 

The jump in assets represents a 62 per cent increase since the beginning of 2009 and leaves industry assets at their pre-crisis levels in 2007. 

Preliminary results indicate that the hedge fund industry experienced net inflows of USD448bn (+37 per cent) in 2009. 

The amount of inflows represents the largest inflow of assets in the hedge fund history and is a dramatic reversal compared to the 20 per cent decline in asset flows in 2008 (USD399bn). 

The remaining USD302bn (25 per cent) gain in assets was the result of positive performance as the Hennessee Hedge Fund Index jumped 24.6 per cent in 2009, the best annual gain since 1999. 

“Despite many of the well publicised challenges the industry faced entering 2009, particularly after the Madoff scandal, the industry was able persevere and experienced 37 per cent in new asset growth over the full year period,” says Charles Gradante, co-founder of Hennessee Group. “New assets are coming from the traditional long-only side; in part due to the horrendous losses in 2008 coupled with an improved comfort level with hedge funds for those institutions with 10 or more years experience in hedge funds.”

Hennessee Group finds that fund of hedge funds remain the single largest source of capital for hedge funds at 29 per cent of industry capital. Of those that invest directly into hedge funds, individuals/family offices are at 26 per cent, pensions represent 19 per cent, endowments/foundations represent 14 per cent and corporations represent 12 per cent. 

This is in sharp contrast to a Hennessee Group survey a decade ago when individuals/family offices represented 53 per cent, fund of funds represented 20 per cent, pensions represented nine per cent; endowments/foundations represented seven per cent and corporations represented 12 per cent.

Total assets for arbitrage and event driven funds were up approximately 44 per cent in 2009.  The Hennessee Arbitrage/Event Driven Index (which includes distressed) gained 30.8 per cent for the year.  Arbitrage and event driven strategies were able to take advantage of the massive deleveraging and forced liquidations in 2008, and generate outsized gains in 2009 as stability returned to the financial markets.  The arbitrage and event driven space experienced the greatest inflows for the year.  

Total assets for long/short equity funds increased approximately 32 per cent in 2009, with 10.6 per cent coming from new assets and 21.4 per cent through performance. The Hennessee Long/Short Equity Index rose 21.4 per cent in 2009. Long/short equity funds most willing to take on heightened directional risk were most rewarded as the equity markets experienced a strong, broad based rally.

Total assets for global/macro funds rose 29 per cent in 2009, with 4.4 per cent coming from new assets and 24.6 per cent through performance. The Hennessee Global/Macro Index gained 24.6 per cent for the year. Global/macro funds benefited from strong international equity markets, particularly the emerging markets. In addition, macro managers generated profits in short positions in the US dollar and treasuries, and long positions in oil and gold. Macro managers also took advantage of historically low rates, particularly in the US, to profit from the carry trade.

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