Despite strong equity market conditions in the first few months of the year, new hedge fund launches in Europe remained at record low levels in the first half of 2013 – testament to the uncertainty around the regulatory and business environment for hedge funds created by the EU’s incoming AIFMD regime and the Eurozone’s continuing political and economic woes.
According to the latest survey by the EuroHedge data and research team, just 34 new offshore European hedge funds were confirmed as having launched in the first six months of this year – the lowest first-half level since EuroHedge began tracking the new fund market in 2000.
Collectively, these 34 new funds raised assets of just over $3 billion – the lowest first-half assets total since the first half of 2009, when the hedge fund industry was reeling from the crash of 2008.
In terms of both the number of new funds and the overall assets raised, the levels are less than one-fifth of those seen at the peak of the industry’s pre-crisis boom. In the first half of 2007, by contrast, 189 new European hedge funds raised combined assets of $15.5 billion.
The number of new funds in the first six months to the end of June shows a further drop on the 37 new funds that launched in the first half of 2012. Furthermore, it is some 28% lower than the 47 new hedge funds in Europe that started in the first half of 2009 – and is also lower than the 41 new funds that launched in the first half of 2000, when the European industry was in its very early stages.
In terms of assets raised by the new funds, the figure of just over $3 billion also marks a further drop from the $3.6 billion figure for the first half of last year – although it remains well above the asset figure of just $2.1 billion for new fund launches in the first half of 2009.
The overall figures are improved to some extent if one also adds in the 20 new onshore hedge funds that have been launched in Europe under the UCITS format since the start of the year, raising some $800 million – with the largest new UCITS launch being the new Odey Swan onshore version of Crispin Odey’s flagship Odey European offshore strategy, which has raised around $200 million since its launch in March.
But the onshore fund market has also been hit hard by events and developments in Europe – with the UCITS hedge fund launch numbers for the first six months of this year comparing poorly with the first half of 2011, when almost 50 new funds raised assets of $2.6 billion.
With the controversial AIFM Directive coming into effect from this month – although final implementation across the EU is not required until July 2014 – it is not surprising that a few potential new launches have been held back until that particular event was out of the way.
But the uncertainty aroused by the new regulatory environment that will prevail for the alternative asset management industry as a result of the AIFMD – and the implications for managers, investors and service providers – is clearly acting as a further brake on new fund activity in Europe at what was already a difficult time.
Despite the bleak general backdrop in terms of the absolute numbers, there are still grounds for optimism: in terms of the quality of the new funds that are coming through (both in terms of their investment pedigree and the strength of their operational set-up); in terms of the accelerating ‘second-generation’ trend that has been such a driving force in the US market; and in terms of the ability, through a widening range of onshore and offshore structures, for managers to target an ever-increasing range of individual and institutional investors.
That said, no-one in the industry is in any doubt that the conditions for starting new funds are harsher than at any time in the past, that the costs of doing business are increasing inexorably in this ever more institutionalised and regulation-heavy period, and that the barriers to entry are rising all the time.
As a result many, if not most, of the bigger new starts these days are launching with significant anchor, seeding or strategic partner capital from day one – giving them a degree of business stability and institutional robustness that was rarely a feature of new fund launches in the more entrepreneurial, ‘have-a-go’ days of old.
The average size of the new funds that are starting remains at historically high levels – at around $90 million in the first half of 2013, down a little from the $116 million average size in H1 2011 but still more than double the $44 million average for the first half of 2009.
And the dramatically more challenging new fund environment that has prevailed since the 2008 crunch has clearly raised the bar to a level where much of the froth of previous years is gone for good – and where only proven managers and firms with strong track records and a solid operational framework have any realistic prospect of raising capital from day one.
In terms of the largest new launches so far this year, only one – although the largest one – is what might properly be regarded as a completely new hedge fund operation, as opposed to a new launch from an existing firm or platform.
That is the Zug-based Argentière multi-strategy equity relative value and volatility trading operation led by highly-rated former JP Morgan equity prop trading chief Deepak Gulati – which attracted initial capital of around $400 million, including a substantial commitment from a US-based seeder, and whose 20-strong team comprises mainly ex-JP Morgan people.
Second in size is the high-capacity, low-fee CCP Core Macro fund launched by Cambridge-based systematic trading firm Cantab Capital – one of the few stars of a dismal year for CTAs in 2012, but whose fortunes have reversed sharply this year with its flagship CCP Quantitative fund down by almost 20% in the first half of the year.
In third place is Canosa – a new London-based global macro addition to the Stockholm-headquartered Brummer & Partners operation, led by former Rubicon portfolio managers Tim Attias and Santiago Alarco.
Fourth is RWC European Focus, the new offshore vehicle for the activist investing strategy run by the well-regarded former Hermes team that joined London-based asset manager RWC last year.
And the last of the five largest launches is the new Andurand Commodities operation led by former BlueGold founder Pierre Andurand – a renowned oil and energy derivatives trader who has made a strikingly strong start with his new firm, gaining some 30% in its five months to the end of June.
Below this top tier are several other significant high-quality first-half launches, including: ex-Goldman quant prop trader George Assaly’s Alcova; former Canyon London head Mans Larsson’s Makuria; ex-Deutsche credit trading head Antoine Cornut’s Camares (backed by some prominent seeders); former Halcyon London head Khing Oei’s Eyck; ex-Eton Park partner Ed Misrahi’s Ronit; former GLG manager James Berger’s Swiss-based B1; and Makis Kaketsis’ MSK launch, the first spin-out from the Ivaldi Capital platform.
And the pipeline for the second half of the year is also filling up with a number of interesting launches. Among those attracting the interest of investors are: the new equity trading fund from BlueCrest led by a team of ex-Nomura prop traders; the CQS equity fund run by ex-SAC and Soros man David Morant; the Salt Rock global macro operation led by former Caxton Europe chief Mark Painting; ex-Algebris founder Eric Halet’s new Silvaris global equity launch; former Centaurus manager Patrick Bierbaum’s Zurich-based P Squared event-driven fund; the Arcade credit operation led by ex-UBS credit prop trading head Yassir Benjelloun-Touimi; the Idalion macro spin-out by a former Tudor and Vega team; and ex-Morgan Stanley principal investing head George Kounelakis’ ENA Capital.