It’s always a lark to contrast and compare different surveys measuring the size and scope of the global hedge fund industry. For obvious reasons, no one can truly lay claim to knowing the exact breadth and depth of hedge fund managers, strategies, assets under management or collective returns.
For us, though, consensus is a good thing, which is why a report last month from the International Financial Services London (IFSL) on the hedge fund industry at large caught our attention (click here to download the full report).
The survey, which was done in partnership with the City of London, is more than a bit optimistic about the lay of hedge fund land, which makes sense, given the current “tax them out of town” mentality many London-based hedge fund managers feel they are facing, not to mention the IFSL’s mandate of promoting UK financial services throughout the world.
Even so, the figures collected, which focus on everything from assets under management to returns to direction of capital flows to the physical number of hedge funds in existence globally, encapsulate what numerous other reports of a similar nature have been collectively saying: The hedge fund industry is alive and well and back from the 2008 brink – at least for the time being. (click here and here for some of AllAboutAlpha.com’s recent coverage of various hedge fund industry surveys).
Among the report’s more salient findings were that assets under management within the hedge fund industry increased by a healthy 13% last year to $1.7 trillion, a bit higher than the bantered-about $1.5 trillion figure but reasonably close. Further, the report noted that hedge funds collectively returned 19% last year, also a higher-than-the-mean number, but we’ll take it.
In terms of the number of hedge funds, IFSL counted some 9,400 at the end of last year, about 1,000 below the 1997 peak. However, new fund launches exceeded the number of liquidations in the second half of 2009 as managers recovered and net inflows slowly improved (see chart below.)
Institutional investors have replaced high-net-worth as the biggest source of capital for hedge funds, thanks to hedge funds with a higher proportion of institutional assets faring better in 2008 and the early part of 2009. According to IFSL, a breakdown of institutional investors by type of investor shows that funds of hedge funds accounted for 24% of assets, followed by public pension funds (17%), endowment plans (14%) and private pension funds (14%) (see chart below showing IFSL’s estimates of net asset flows and returns).
Of course, the report’s biggest claim to fame was that London remains the largest hedge fund center in Europe and the second largest in the world, with IFSL estimating that 20% of global hedge fund assets rest in “The City.” At the end of 2009, three-quarters of European hedge fund assets totaling nearly $400 billion were managed out of the U.K., predominantly from London, with the U.K. also stacking up as the base of choice for administrators, prime brokers, custodians and auditors.
What a pip.
As noted, it’s always fun to contrast and compare “lay of the land” research on the hedge fund industry, and we have no issue with the IFSL’s optimistic numbers and forecasts, which do just slightly skew the mean. The broader picture is that the industry overall is going in the right direction, which in our opinion should be everybody’s cup of tea and crumpets.