Hedge fund assets soar by $100bn

Miles Costello

Assets under management at hedge funds soared by $100 billion in the second quarter as the sector became one of the first to benefit from the bounce in world markets and investors regained confidence.

The increase in assets marks the first rise since the second quarter last year, when hedge fund assets peaked at $1.93 trillion, according to Hedge Fund Research (HFR), the Chicago-based group.

Investors renewed their interest in alternative investments, which last year posted their first annual loss in ten years, after stock markets across the world spiked in March on the back of a concerted effort by the US Government to help rid banks of their toxic assets.

After losing investors 19.8 per cent of their money last year, hedge funds began to generate positive returns once again.

HFR’s composite index of hedge funds showed a performance gain of 9.13 per cent for the second quarter, which helped lead to a return for the first half of 9.46 per cent, its best in almost ten years.

Ken Heinz, president of HFR, said: “Improved liquidity in credit markets contributed to narrowing some of the pricing dislocations that were created near the end of 2008, and the combination of improved credit markets, gains in emerging markets, and decreased risk aversion have driven broad-based gains in 2009.”

Funds that have successfully weathered last year’s storm are beginning to expand again.

Today, Citadel Securities, part of the Chicago-based hedge fund Citadel group, said it would take a majority stake in Equiduct, an electronic trading platform owned by the Berlin exchange. Citadel plans to turn Equiduct into a pan-European shares trading system for small investors.

According to HFR, hedge fund assets stood at $1.43 trillion at the end of June, a net increase of $100 billion compared with the end of March.

The gain in assets was balanced by redemptions as investors pulled $42.8 billion from underperforming funds during the three-month period, HFR said.

It noted that redemptions in the second quarter were 60 per cent lower than the first.

But there are signs that hedge funds may be on the brink of suffering again. According to Lipper, a Singapore based research firm, only four of the 13 strategies that it tracks posted positive returns for investors in June.

Convertible arbitrage funds rose 0.28 per cent last month, followed by event-driven funds, which rose 0.23 per cent, according to Lipper. Fixed income strategies gained just 0.08 per cent, while emerging markets funds improved by 0.003 per cent.

Every other strategy, including managed futures, a favourite of Man Group, the largest listed hedge fund manager, fell during the month.

However, the figures stand up well against other markets. Investors in the FTSE 100 saw the value of their holdings fall by 5.7 per cent last month. (Miles Costello, The Times) http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article6721906.ece

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