- Assets decline 9 per cent in the first two months of 2009 as redemptions surge
- 30 per cent fall in 2008, biggest decline on record
- London holds steady as second largest centre with 18 per cent of assets
Hedge funds’ assets are likely to fall by over 20 per cent in 2009, according to International Financial Services London (IFSL), the independent organisation promoting UK financial services worldwide. Its annual Hedge Funds report indicates that in the first two months of 2009 hedge fund assets fell by 9 per cent, largely due to redemptions. The surge in withdrawals at the start of the year came as restrictions on redemptions in some hedge funds, particularly in the US, were lifted.
After a decade of growth averaging around 20 per cent a year, assets under management of the global hedge fund industry fell by nearly 30per cent in 2008 to $1,500bn. The decline, the biggest on record, was due in equal measure to negative performance and withdrawals.
The average hedge fund lost 15.7 per cent in 2008, the worst performance on record. Nearly three quarters of hedge funds, and 85 per cent of funds of hedge funds lost money during the year. The bulk of losses came between September and November. Main contributors to the losses included the collapse of banks in the US and Europe, falls in equity markets, a ban on short-selling and pressure to liquidate positions to meet margin and redemption calls. Declines in many of the underlying markets saw even larger falls. For example the Standard & Poor’s 500 for US equities dropped 38 per cent during the year.
Hedge funds returned 13.2 per cent of assets to investors in 2008. This rise in redemptions was due to losses, risk aversion and reputational damage inflicted by the Bernard Madoff fraud. This is only the second time in the past two decades that the industry has suffered an annual net outflow of funds. The positive inflows during the first half of the year were more than offset by outflows in the second half. The third and fourth quarters of 2008 set consecutive records in the value of quarterly redemptions.
New York remains the leading global location for management of hedge fund assets with a 42 per cent share in 2008, slightly up on the previous year due to bigger redemptions in Europe. London is the second largest centre with 18 per cent, nearly double its share in 2002.
Marko Maslakovic, Senior Economist at IFSL, said: “The 900 hedge funds located in London managed around $260bn in 2008, or four-fifths of the assets of hedge funds based in Europe. Despite the global slowdown, the inherent structural advantages which have long attracted hedge funds to London remain in place, including its reservoir of local expertise and its accessibility to clients.”
Sir Stephen Wright, Chief Executive at IFSL, said: “London’s position as a leading global financial centre is enhanced by the concentration of hedge funds and other professional financial services providers. Here at IFSL we look forward to working with them in addressing the challenges raised by the global financial crisis.”
The table below illustrates the share of global hedge fund assets under management by geographical region.
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