The global hedge fund industry lost $100 billion of assets in October, according to an estimate from Eurekahedge, as firms, including Sparx Group Co and Man Group, were hammered by investor redemptions.
Funds fell by an average 3.3 per cent, based on preliminary figures from the Singapore-based data provider, as measured by the Eurekahedge Hedge Fund Index, which tracks the performance of more than 2,000 funds that invest globally. That compares with a 19 per cent slide in the MSCI World Index last month.
The biggest market losses since the Great Depression and investor withdrawals hurt the $1.7-trillion hedge fund industry that manages largely unregulated pools of capital. The index of global funds has lost 11 per cent this year, set for the worst performance since 2000, when Eurekahedge began tracking the data.
“This wave of redemptions in the hedge fund industry is going to last for at least another six months,’’ said Toyomi Kusano, the president of Kusano Global Frontier, a hedge fund research firm in Tokyo. “There are some funds that halted withdrawals, but those funds would eventually have to defreeze, and that means another wave of redemptions.’’
Earlier this week, Sparx Group Co, Asia’s biggest hedge-fund manager with $8.5 billion in assets, posted a first-half loss on redemptions and falling stock prices. Its assets under management on a preliminary basis were 839.1 billion yen ($8.8 billion) as of October 31 compared with a peak of 2 trillion yen in August 2006.
The London-based Man Group, the largest publicly-traded hedge-fund manager, reported assets under management, which stood at $70.3 billion as of September 30, fell to $61 billion at the beginning of November, the least since March 2007.
Shrinking industry
“As both hedge fund managers and fund of funds scramble to meet client redemptions, one thing is clear: the industry is going to shrink substantially over the coming months, perhaps as much as 50 per cent in terms of both assets under management and number of funds,’’ said Kostas Iordanidis, head of hedge funds at Geneva-based Unigestion Holding, which invests $3.2 billion in hedge funds worldwide.
Unigestion is investing in macro- and commodity-trading advisers (CTA), funds, avoiding equity long-short portfolios, Iordanidis said.
Assets in Singapore-based Tantallon Capital’s flagship Tantallon Fund shrank to $284 million at the end of October, according to data compiled by Bloomberg. The fund, managed by Nicholas Harbinson, a Tantallon co-founder and former Merrill Lynch & Co head of sales, stood at $877 million at the end of August, from as much as $1.5 billion at the start of the year.
Japan outperforms
Still, hedge funds have outperformed relative to the MSCI World Index that has lost 46 per cent this year. In October, managers who trade futures, or CTAs, and those who invest in Japan helped offset declines, Eurekahedge said.
In terms of regional mandates, the Eurekahedge Japan Hedge Fund Index was the best performer, declining 0.8 per cent last month, even as the benchmark Topix index slid 20 per cent, the firm said. Trades that involved selling regional stocks and took advantage of currency moves helped stem losses, Eurekahedge said. The yen strengthened more than 7 per cent against the dollar in October, the biggest gain since October 1998. Among Japan funds, the 2.7-billion-yen Sparx Japan Stocks Long Short Fund, also known as Best Alpha, declined 2.2 per cent in October, according to monthly data posted on the company’s website.
“Not as Bad”
The Eurekahedge Asian Hedge Fund Index lost 4.3 per cent. Singapore-based Tantallon’s long-short fund, which seeks to profit from both gains and declines in stock prices, fell 28.6 per cent this year through October. It was up 0.59 per cent last month, Bloomberg data show.
US hedge-fund managers may lose 15 per cent of assets to withdrawals by the year-end, while their European rivals shed as much as 25 per cent, Huw van Steenis, a Morgan Stanley analyst in London, wrote last month in a report to clients.
