At the start of 2012, hedge fund managers welcomed the year
with the prospect of a better economic outlook compared to the
difficulties they encountered in 2011. However, as the endless
Eurozone debt crisis continued to drag on through the first
half of 2012 coupled with ongoing worries over growth forecasts
for the US, China and emerging markets, high hopes have been
tempered by a more sober economic reality.
Yet, the industry has managed to steadily steer its way
through the tough risk on/risk off investment environment.
Global assets have modestly risen to surpass $2.245 trillion
(including UCITS funds) - a slight increase over the $2.158
trillion total (including UCITS) at the end of 2011. But, as
their performance lags behind the major stock market indices,
managers still face the challenge of proving that they can
deliver better risk-adjusted returns with less volatility -
regardless of the market conditions. Clearly, the halcyon days
of rapid growth, easy money and an eagerness for risk-taking by
investors no longer characterise the current industry.
Harder times inevitably create more stressful operating
conditions. As our
Industry Outlook Survey reveals , chief operating officers
are very much on the front line in meeting increasing demands
for greater transparency and risk management analysis -
particularly from institutional clients. At the same time, they
need to confront a multitude of new regulatory requirements
which are significantly adding to the costs and administration
hassle in running a hedge fund business. Unsurprisingly, all of
the survey's panellists agree that COOs are finding it harder
to fulfil their role than in the past.
Data generated by our elite Global Billion Dollar Club
indicate that size still matters - a trend that has
characterised the slow recovery from the global financial
crisis. Billion-dollar firms continue to grow bigger and now
account for $1.848 trillion, or 86%, of the industry's overall
assets. Investors are increasingly attracted to the larger
players as reflected in the fact that the 50 biggest
billion-dollar firms in the US increased assets by 3.34% in the
first half of the year while assets for the rest of the US
industry only grew by 1.52%.
New fund launches remain at a depressed level, particularly
in the US and Europe, but, with the volume of assets edging up,
there has significantly not been any net redemptions - not yet
at least. It is also heartening that many new funds are being
launched by managers with an impressive investment background
and a sound, institutional-quality business structure.
THE CHALLENGE FOR FUNDS OF FUNDS
Perhaps the greatest challenges now confront the fund
of hedge funds (FoHFs) industry where the biggest players have
seen a drastic fall in assets from $1.1 trillion in 2007 to
$600 billion today. Like much of the hedge fund industry, FoHFs
are also undergoing a period of significant consolidation -
driven by the relentless institutionalisation of the business.
Fortunately, the haemorrhaging of clients and assets has
FoHF managers focus on reinventing their business model .
Other FoHF players are aiming to specialise, often by creating
bespoke portfolios as well as offering advisory services amid a
further blurring of the traditional lines between FoHFs and
This edition of the Global Review is also presenting the
global survey of the prime broking market , based on
regional surveys conducted by our data teams in all the main
hedge fund locations. This detailed analysis provides a unique
insight into a key area underpinning hedge fund operations and
confirms that Goldman Sachs remains the world's leading prime
broker in terms of mandates and client assets - though hotly
pursued by a range of other leading providers.