Available Hedge Fund Seed Capital Down in Q3/Q4

While anecdotal evidence suggests that hedge fund launches are picking up in the second half of the year, the amount of seed capital available from institutional investors has dropped by 44%.

According to Acceleration Capital Group, which surveyed 50 top institutional hedge fund seeding firms globally, the amount of seed capital available in Q3/Q4 of this year is $1.32 billion compared with $2.35 billion that was available in the first half of the year.

The survey also reveals that 52% of hedge fund seeders currently prefer investing in distressed and global macro strategies, with equity long/short coming in third at 48%.

The list of top five preferred strategies was rounded out by volatility trading (38%) and event driven (38%) funds. See full report below.

Hedge Fund Seed Capital Report For Q3/Q4 2009

Comments

[Mad Hedge Fund Trader]

sdo The hedge fund industry is still emerging from the ashes of 2008, but will inevitably grab a larger share of the investing public’s assets. Low interest rates and hero status made it way too easy for inexperienced, untested, and sometimes unscrupulous managers to raise new funds that charged management fees as high as 3%, with a 50% performance bonus. Behind every “liar loan” was a bond manager happy to soak it up through securitized Fannie Mae (FNM), Freddie Mac (FRE), or bank debt, shorting Treasuries against them, and then leveraging the 40 basis point spread 50 times to generate a highly marketable 20% annual gross return. Never mind the risks. It was easy money, as long as there were lots of liars- which mortgage brokers herded in by droves, and as long as spreads narrowed-which they did for most of the 21st century. By the beginning of 2008, assets under management soared to $2 trillion. The melt down that followed wiped out large numbers of funds, and raised gates for the survivors, making investors wonder if they would ever get their money back. Total assets plunged to $1 trillion in the blink of an eye through a combination of redemptions and market losses. The new era that is emerging will be populated with humbled and chastened managers offering more disclosure, lower fees, no gates, and thanks to Madoff, oodles of third party oversight. Their portfolios will have less leverage, be invested in more liquid securities, and bring in lower returns. But the new generation will also offer investors battle tested strategies that survived the 100 year flood. Bridgewater, with $37 billion in assets, is now the largest hedge fund, followed by JP Morgan with $36 billion, Paulson & Co. at $27 billion, DE Shaw showing $26 billion, and Soros still at a hefty $24 billion. Long track records and a Gucci cachet will assure that these will prosper. Fees will settle down to the 1%/20% range. For the rest of us this means more capital bunching up in the most successful trades, as we have already seen this year in financials, China, oil, copper, and the multitude of short dollar plays. It is also going to be much harder to get new fund launches off the ground.

2009 Nov 03 11:15 AM