Hedge Funds to Add Jobs in 2008, Assets Continue to Grow
Despite the subprime meltdown, new research shows that over the past six months the hedge fund industry posted double-digit growth. As of November, hedge fund assets surged 11%, bringing the loosely regulated industry’s total assets under management to a whopping $4 trillion, according to the 9th biannual HFMWeek Hedge Fund Administrators Survey.
One reason for the surge: increasing pension fund allocations to alternative strategies. In fact, a recent report issued by Merrill Lynch and Casey Quirk found that institutional investors would more than double their investments in alternatives to around $11 trillion by 2011. Looking ahead, executive search firm, A.E. Feldman, reports that hedge funds, which manage to sidestep the credit crunch, will be raising more capital and expanding their ranks in 2008. Hedge fund jobs will be opening up for candidates with strong valuation and analytical skills.
Single fund assets under administration increased 29% over the past year, growing from $2.5 trillion to $2.7 trillion in the past six months alone, according to the HFMWeek survey. Meanwhile, fund of hedge funds also posted steady growth. The survey found that asset inflows jumped to $1.3 trillion from $1.1 trillion in the past six months.
What’s driving hedge fund growth?
Strong performance from existing managers along with greater capital allocation from institutional investors is behind the surge in hedge fund assets, according to the HFMWeek Survey.
Institutional investors’ commitment to alternative assets is also underscored in a recent survey conducted by Citigroup Analyst, Prashant Bhatia. The survey, which polled U.S. and European pension fund managers collectively managing more than $1 trillion in assets, found that 85% of those participants intend to increase their allocations to alternative investments, including hedge funds, over the next three years. That means on average, pension funds will invest nearly 20% of their assets in alternative investments by 2010.
Disappointing November
Though some managers are still up strongly for the year, November proved to be a disappointing month for many hedge fund strategies.
Hedge Fund Research data shows that hedge funds sank 1.4% last month, according to FINalternatives. Some of the year’s most successful strategies were the hardest hit. The HFRI Emerging Markets index fell 2.76% in November. The strategy however, remains up a staggering 22.54% year-to-date. The report also states that the HRFI Technology sector declined 3.97% but is also up 15.38% year-to-date.
Meanwhile, five HFRI strategies saw modest gains last month, led by short-selling with a 6.52% jump. Other strategies in the black in November: fixed-income returning 0.79% on the month (up 3.95% year-to-date), health care and biotechnology up 0.74% (12.03% year-to-date) and relative value up 0.48% (9.31% year-to-date).
Thanks to the credit crunch, hedge funds are facing higher financing costs, concerns about redemptions as well as wider spreads for strategies such as relative-value and arbitrage. HFMWeek also reports that fear that banks will pull back leverage is also affecting performance and returns in many strategies.
Opportunistic Hedge Funds Mopping Up Cheap Debt
Facing continuing market turmoil, many hedge funds and private equity firms are willing to bet that distressed debt will offset losses to their overall returns.
In the first half of this year, distressed debt funds already raised $23.7 billion, up from $19 billion raised in all of 2006, according to Dow Jones Private Equity Analyst, New York. Moreover, Thane W. Carlston, Managing Director at Jefferies & Co, predicted a lot of corporate leveraged debt will begin coming due in 2008, and billions could become distressed.
Citadel, a giant Chicago-based hedge fund, is known for making opportunistic purchases and for its large team of analysts who enable it to execute deals rapidly, according to the WSJ. A.E. Feldman reports that investment professionals with strong valuation and analytical skills are poised to gain from this trend.
