Hedge Funds Still Seek the Best and Brightest
Despite the subprime meltdown and subsequent volatility in global financial markets, hedge fund assets have posted double digit growth in the past six months. That’s according to the 9th biannual HFMWeek Hedge Fund Administrators Survey. The primary drivers of growth in the hedge fund industry: institutional investors. A recent Investment News report contends that endowments and pensions are not only propelling growth in the industry, but also wielding more influence. These behemoth investors don’t base their investment decisions on short-term market fluctuations. In fact, pension funds are expected to double their allocations to hedge funds to an average of 8% from 4% within three years – despite recent market volatility, according to Reuters, citing a KPMG survey.
As their assets continue to grow, hedge funds are still looking to hire the best and the brightest. Executive search firm, A.E. Feldman, reports that hedge funds need people to manage the trillion-dollar industry. Risk professionals are among those in demand. Continued growth of assets under management at hedge funds, however, is also opening doors for back- and middle-office staff. Opportunities exist in hedge fund accounting, and administration as well as investment operations.
Despite the subprime debacle, hedge fund assets have grown to more than $2.9 billion, jumping 20% in the past year, according to a recent survey by Hedge Fund Manager Week. Although the rate of growth of fresh inflows has slowed (outflows outpaced inflows in April), in the six months to April, $230 billion of new money was generated, representing a growth rate of 9%.
HedgeFund.net ’s Q1 2008 Hedge Fund Asset Flows & Performance Report found that fund of funds’ assets increased in the first quarter. Total assets in funds of funds increased 1.1% to an estimated $1.4 trillion. Performance losses of $57.2 billion were offset by new allocations of an estimated $71.9 billion, an indication that large institutions continued to increase exposure to the hedge fund industry through funds of funds, the report found.
Institutional investors have traditionally favored fund of hedge funds because they are perceived to be less exposed to market volatility by allocating assets to a variety of hedge funds. According to Investment News, the one trend that has appeared to dominate the hedge fund industry over the past decade has been the increased influence of institutional-class investors.
Investment News quotes Stuart Feffer, Co-Chief Executive Officer at LaCrosse Global Fund Services, as saying, “The biggest change I’ve seen in the hedge fund industry is that it has become largely institutional. Even as recently as five years ago, most of the money going into hedge funds was coming from wealthy individual investors. Now almost all of the new money is coming from institutions like pension funds, and most university endowments are making allocations to hedge funds.”
Aside from fund of hedge funds, funds focusing on fixed income markets also saw net increases in new allocation, while funds focusing on equities experienced a net decrease in assets from redemptions from existing funds. HedgeFund.net contends this is an indication investors see greater opportunity in fixed income markets this year.
Total assets in funds focusing in Latin America experienced the largest percentage gain of any region in Q1 2008, according to HedgeFund.net’s survey. Total asses rose 29.8% to an estimated $21.3 billion due to new fund launches and new allocations to existing funds. The survey also found that LatAm funds were the best performing regionally focused emerging markets funds in the first quarter.
Meanwhile, HedgeFund.net says CTA/Managed Futures funds produced the best average performance in the first quarter. Total asset levels increased 15% to an estimated $196 billion. New allocations of $10.2 billion were the second largest quarterly increase in new allocations on record. The survey reveals that organic growth during the quarter was also 5.7%, topping the historical average rate of 3.4%.
