With less than three months to go until new legislation ushers in major changes for the European hedge fund industry, a new report reveals that the continent’s share of the global market has remained surprisingly stable at just over a fifth.
TheCityUK’s Hedge Funds 2013 report also shows that London retains its position as Europe’s hedge fund capital, and is second only to New York for global hedge fund management with 18 per cent of the global share.
According to TheCityUK, hedge fund activity levels in London and Europe have held firm following the rise in UCITS compliant hedge funds, which will not be subject to the incoming Alternative Investment Fund Managers Directive (AIFMD).
According to the report, London remains by far the dominant centre in Europe, managing around 85 per cent of European based hedge fund assets. The city’s share of the hedge fund market has remained steady over the past four years despite fears over the impact of regulatory changes.
Chris Cummings (pictured), chief executive at TheCityUK, says: “It’s a testament to the European hedge fund industry, and London in particular, that the feared exodus of hedge funds to offshore locations ahead of AIFMD has not materialised. It’s also another great example of the key role London plays as Europe’s financial centre and a gateway to the single market. Over 600 hedge funds operate in London, attracted by the city’s support infrastructure and expertise, and the proximity of clients and markets.
“The UK must maintain its competitiveness in the hedge fund industry. Not only is it a key industry for the country, employing 40,000 people in total, but London also serves a vital purpose as Europe’s hedge fund activity hub. It is not yet clear exactly what will happen when AIFMD comes into effect, but we will follow developments closely and work hard to ensure the UK remains competitive.”
From July 2013, European hedge funds will need to comply with AIFMD if they want to manage and distribute Alternative Investment Funds (AIFs) in the EU. TheCityUK’s report suggests that the strong growth of UCITS compliant hedge funds, which are not affected by AIFMD, is a key driver behind hedge fund assets remaining in Europe rather than disappearing offshore. Many European hedge funds have recently launched UCITS compliant standalone on-shore fund vehicles, so UCITS compliant hedge funds in Europe have increased more quickly than AIFs since 2008; at the end of 2012 they accounted for over a third of European industry assets. The UK is the dominant management location for these funds, accounting for nearly three quarters of assets under management and around half the funds.
Overall, global hedge funds’ assets totalled USD2,050bn at the end of 2012. According to TheCityUK, hedge fund assets under management approached record levels in the first quarter of 2013, increasing by a further USD75bn. The number of hedge funds totalled around 10,100 worldwide at the end of 2012, with new hedge fund launches outpacing fund liquidations for the third year running. Overall, New York remains the global leader for hedge fund activity, accounting for 42 per cent of global hedge fund assets at the end of 2012 – down from over 50 per cent a decade earlier. By contrast, London’s 18 per cent global share in 2012 was nearly double its share a decade earlier.