Risk Without Reward

European Hedge Fund Ranking

Alpha Magazine's latest ranking of European hedge fund managers shows the following assets as of January 1, 2009 (see press release):

Alpha's Europe Hedge Fund Top 5

	

		
Rank Firm
		
Total Capital
 ($ millions)
	
	
	

		
1 Brevan Howard Asset Management
		
26,840
	
	
	

		
2 Man Investments
		
24,400
	
	
	

		
3 Barclays Global Investors	
		
17,000
	
	
	

		
4 BlueBay Asset Management
		
16,700
	
	
	

		
5 Bluecrest Capital Management
		
13,273
	

Overall, Alpha notes that the largest 50 firms in Europe managed $285 billion at the beginning of 2009 as compared to $405 billion a year earlier, representing a drop of 30%.

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Hedge Fund Operational Due Diligence 

2009 Manager Roll Call

Alpha Magazine has published its most recent update of the top 10 single strategy hedge funds.  This includes, helpfully, the position at January 1, 2009 - after Dec 31 redemptions.

The current list is:

"Alpha's" Hedge Fund 100 Top 10

Rank  Firm                 Total Capital ($ millions)
1    Bridgewater Associates           38,600
2    JPMorgan Asset Management          32,893
3    Paulson & Co.                29,000
4    D.E. Shaw & Co.               28,600
5    Brevan Howard Asset Management       26,840
6    Man Investments               24,400
7    Och-Ziff Capital Management Group      22,100
8    Soros Fund Management            21,000
9    Goldman Sachs Asset Management       20,585
10   Farallon Capital Management         20,000
10   Renaissance Technologies Corp.       20,000

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Hedge Fund Operational Due Diligence

More Industry Statistics

Two further studies of industry size and ranking.

Hedgefund.net has published its most recent survey of hedge fund administrators.  Citco remains the reported largest admin, with assets under administration of $375 billion.  State Street, Goldman, Citi and BoNY Mellon round out the top 5.

Separately,InvestHedge has prepared an updated summary of the industry's largest fund of funds as of December 31, 2008 - although it is unclear whether these numbers include redemptions as of Dec 31 / Jan 1.

Investhedge`s top 10 largest FoHFs

Top 10 largest Funds of Funds	Assets in $bln, 31 December 2008
UBS Global Asset Management A&Q	34.00
Union Bancaire Privée	33.00
HSBC Alternative Investments	31.88
Permal Investment Management	24.40
Blackstone Alternative Asset Management	23.65
Goldman Sachs Asset Management	23.50
Credit Suisse	21.90
Grosvenor Capital Management	20.50
RMF	19.30
GAM Multi-Manager	18.40

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Hedge Fund Operational Due Diligence 

The Largest Hedge Funds - a New Top 10

Bloomberg has published an update to the list of the industry's largest hedge funds.  As of January 1, 2009 (with some Dec 31 2008 mixed in, which is not exactly apples to apples) the survey reports the following Top 10:

Top 10 U.S. Hedge-Fund Firms    Firm AUM
                  ($ billions)

Bridgewater Associates       $38.6
JPMorgan              $32.9
Paulson & Co.           $29
D.E. Shaw Group          $28.6
Och-Ziff Capital Management    $22.1
Soros Fund Management       $21
Goldman Sachs Asset Management   $20.6*
Farallon Capital Management    $20
Renaissance Technologies      $20
Barclays Global Investors     $17*

*As of Dec. 31. All other figures as of Jan. 1

The source of data used by Bloomberg is Absolute Return magazine.

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Hedge Fund Operational Due Diligence 

Hedge funds in the Cayman Islands

A few days ago, the Cayman Islands Monetary Authority published their "Investments Statistical Digest", which is a summary of the "e-reports" that all Cayman hedge funds now have to submit to the local regulator.

The statistics cover 5,052 Cayman domiciled hedge funds which filed as of December 31, 2006.  This represents 81% of the funds which were due to publish their annual returns as of that date (although what happened to the remaining 19% remains unclear). 

The key figures are:

- The 5,000 funds included in the survey had a net asset value of $1.38 trillion

- In all, Cayman reports some 9,413 regulated hedge funds as of December 31, 2007 - these include entities which were formed in 2007, as well as those which do not have December 31 year ends and are hence excluded from the 5,052 sample above.

Total net assets of Cayman funds will hence be significantly above the $1.38 trillion noted above (although, as many of these entities will be fund of funds, there will be a lot of "double counting" of industry assets).

- Average leverage is described as 67% although this will, of course, be calculated on an on balance sheet basis and hence significant understate economic leverage obtained via derivatives.

The CIMA database could be a very useful source of information going forward - definitely something for investors to monitor.

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Casey Quirk: Hedge funds to attract $2.5 billion new money by 2011

Casey Quirk, the Boston based consultants, have produced a new study which predicts new capital inflows of $2.5 billion by 2011.  As such, if we accept that current industry capital is at the $2.5 billion level already, the study suggests that investments in hedge funds will double in barely 4 years.

Links to Casey Quirk's prior hedge fund research is available here (the firm previously partnered with the Bank of New York on some interesting papers related to institutional expectations when investing in hedge funds.)   Hopefully the firm will put the new research up shortly.

Industry Assets Reach $2.5 trillion

Hedge Fund Intelligence published a new survey this week suggesting industry assets had surged to some $2.5 trillion. While such reports are always challenging - some funds do not report their assets and it is easy to double count fund of funds and structured products - it is clear that assets have risen significantly. HFI also notes that industry AUM grew almost 20% in the first six months of 2007: we would agree based on the earlier reports of growth at some of the largest firms.

To put $2.5 trillion in perspective:

If the industry continues to grow at a 15% rate annualized, hedge fund assets will be $3.8 trillion in 2010 and over $7.5 trillion by 2015.

According to the Investment Company Institute, US mutual funds controlled $11.5 trillion as at August 31, 2007. While hedge fund assets remain only 20% of mutual funds, therefore, this does not take account of leverage: if we do think of total assets rather than invested capital, hedge funds are very likely closing in on the mutual fund industry.

Another factoid: the current capitalization of the Nasdaq according to the World Federation of Exchanges is $4.1 trillion. To set a long term goal, the NYSE has a capitalization of $15.6 trillion.

Perhaps one of the biggest implications of the continued growth of hedge fund assets will be simple supply and demand. While there is frequent investment commentary about the need for better transparency, lower fees and better operations, with ever more money chasing a finite number of attractive investment opportunities, at least some managers will feel no compulsion to make changes to their successful businesses. This disconnect between what investors say they would like to see on paper but are prepared to buy in practice is, to us, one of the more interesting features of today's industry.

Big hedge funds get bigger

A combination of an article in Absolute Return magazine, together with information published in the Financial Times, gives a new snapshot on the size of the hedge fund industry, at least as of June 30, 2007. How those calm halcyon days seem so far away...

- JP Morgan is now the world's largest hedge fund manager, with total assets under management of $56.2bn. Highbridge, the asset management firm purchased by JPM in September 2004, now has total assets of $37 billion. Astonishingly, those assets more than doubled in the first six months of 2007, as Highbridge added some $20 billion of capital. That is equivalent to more than $3 billion per month.

- GSAM - at least at the end of June 2007 (but not by the end of August) - was the second largest firm with AUM of $40 bn. DE Shaw came third at $34 bn, with Bridgewater ($32 bn) and Och-Ziff ($29 bn) rounding out the top five. The fastest growing firm was Paulson, who doubled assets in the first half of the year to $15 bn.

- Per Absolute Return, there are now 246 hedge fund firms with assets under management in excess of $1 bn, controlling total investor capital of some $1.457 trillion as of June 30. This would suggest that current estimates of total industry capital at around $1.8 trillion underestimate hedge fund assets materially. This is particularly the case if the Absolute Return figures ignore managers based outside the US - firms such as Bluecrest, Brevan Howard and CQS will add significantly to this total.

For a little quick perspective, the GDP of Canada is $1.5 trillion.