Five long years after the global financial crisis struck in
earnest, the hedge fund industry in Europe is continuing to
flat-line as far as new fund launch activity is concerned.
Although global investor interest in Europe – and
in European-focused hedge fund strategies – has been
reviving rapidly over the last few months, that change in
sentiment has yet to feed through in terms of any decisive
turnaround in new European hedge fund volumes.
That is the clear conclusion from the latest annual survey
of European hedge fund launches to be conducted by the
EuroHedge research and data team – which reveals that
new fund activity in 2013 remained at near-record low levels
despite the recovery in investor appetite towards Europe.
The survey shows that just 83 new offshore European hedge
funds launched in 2013 – three fewer even than in 2012
– while the total volume of assets raised by those new
funds amounted to less than $10 billion for the second year in
Despite the strong performance of European equity and credit
markets last year, and the generally robust performance of many
European-based hedge funds too, regulatory uncertainty and a
still cloudy overall business environment in Europe continue to
exercise a significant restraint on the willingness and ability
of managers to launch new funds.
Many established hedge funds in Europe still have investment
capacity to spare after several years when Europe was largely
off the radar for most international investors –
although that capacity is starting to fill up fast again as a
consequence of the resurgence in investor interest.
Institutional investors, for all their talk of increasingly
wanting to look for smaller funds away from the mega-brands,
are still hesitant for the most part about getting involved
with new launches at an early stage.
Service providers, particularly in the banking world, remain
very selective when it comes to partnering with prospective new
hedge funds – partly as a result of their own broader
internal business restructuring issues, but also partly in
response to the subdued investor demand.
The uncertain and ever-changing regulatory environment is
also creating a big barrier to entry – with the rising
costs of compliance and other operational burdens due to AIFMD
and a host of other new regulatory measures making it ever
harder for start-up managers to get up and running, unless they
have significant seed or 'strategic investor’
commitments from day one.
And, for many would-be start-up managers, the option of
joining a large and established hedge fund platform still seems
to offer a better risk/reward equation than the prospect of
going it alone and launching a new business in what remains a
difficult and risky climate.
But there are positive signs as well, despite the continued
low levels of overall new launch activity. The first is the
increasing appetite of some of the biggest and savviest backers
of early-stage and emerging manager hedge funds – such
as Blackstone, Paloma or Protege – for Europe-focused
strategies, which has resulted in several significant recent
The second is the growing desire of seasoned and senior
managers at large and established hedge fund firms to start
their own operations – with an accelerating line-up of
well-known managers from top-tier European and US-based groups
recently branching out on their own.
A third, in the absence of any new outbreaks of political
and financial instability within the Eurozone, is that the
fast-rallying flow of investor assets into the European hedge
fund industry should start to spill over into the new fund side
of the business as confidence builds among investors,
counterparties and managers alike.
And the fourth is that the AIFMD – which has been
such a source of confusion and uncertainty for most of the past
four years – is at least moving into the
implementation rather than the legislation stage, with the
result that there is finally a good deal more certainty about
what it means and how funds need to adapt.
But, despite a generally brightening horizon, the fact is
that it remains exceptionally hard to launch a new hedge fund
in Europe at the moment – and the figures bear this
Although there was a welcome pick-up of activity in the
second half of the year (when some 51 new offshore fund
launched in Europe, compared with just 32 in a dismal first six
months of 2013), the overall levels of activity on the year are
the lowest since 2002 – when the European industry was
in its formative stages.
The total assets raised by new funds in 2013 – at a
little under $9.4 billion – is only slightly ahead of
the $8.8 billion that was raised by new funds in 2002 (although
it also marks a small increase on the $8.8 billion figure that
was also raised in 2012), while the number of new funds is less
than half of the 181 new funds that were launched in 2002.
Although the average size of new funds in Europe is at an
all-time high of $113 million – which, in itself, says
much about the ever-increasing raising of the bar in terms of
the institutional scale and structure required these days
– the scale of the decline from the pre-crisis era is
dramatic. In 2006, by contrast, more than 420 new funds were
Adding in the 42 new UCITS European hedge fund strategies
that were also launched in an onshore format in 2013 –
raising $2.3 billion – brings the overall total of new
hedge fund launches in Europe to 125, with combined assets of
$11.7 billion (giving an average size of almost $100 million).
But it is still a very far cry from the industry’s
In terms of new offshore fund launches by strategy area,
European equity – for many years the dominant area of
activity in the hedge fund industry in Europe – ranked
only fourth in terms of the number of new start-ups, behind
global equity, credit and macro.
That says much for the respective appetite of investors
towards those strategy areas, although the fact that the eight
new European equity funds raised the largest volume of assets
– at $1.7 billion – also underlines the
potential for new funds to raise money at a time when the wider
European long/short equity universe is so depleted by
comparison with years gone by.
On the UCITS side, meanwhile, European equity remains the
largest source of new hedge fund activity – both in
terms of the number of funds launched (at nine, ahead of macro
and global equity) and also in terms of the overall assets
The table of the largest hedge fund launches during the year
also underlines the extent to which investor appetite has been
biased in recent years towards established firms with a brand
name and a track record.
Only three of the top 10 launches are what one might regard
as true start-ups or standalone new firms: Argentiere, the
Swiss-based multi-strategy group led by former JP Morgan equity
prop trading chief Deepak Gulati; Salt Rock, the new macro
operation headed by former Caxton London head Mark Painting;
and Andurand Commodities, the new firm established by
ex-BlueGold co-founder Pierre Andurand.
Canosa, the London-based macro fund run by former Rubicon
duo Tim Attias and Santiago Alarco which raised significant
assets last year, is arguably also a new operation –
although it is backed by Swedish multi-strategy group Brummer,
which has a sizeable stake in the firm.
But the other six launches are all from existing firms:
Cantab Capital’s CCP Core Macro fund, which was
the largest new launch of the year in spite of the problems
with Cantab’s flagship CCQ Quantitative CTA
strategy; Old Mutual’s OM Arbea global equity
market-neutral launch; Marble Bar’s MBAM Active
Enhanced strategy; RWC’s European Focus activist
vehicle; GLG Global Long/Short; and Swiss-based emerging Europe
specialist Worldview’s new Special Opportunities
event-driven and special sits fund.
In addition to these top 10 launches – all of which
attracted assets of more than $250 million by year-end
– there were numerous other new funds launched during
the year that are running at least $100 million.
In equity these include: Ivaldi spin-out MSK Capital, run by
Makis Kaketsis; the new CQS long/short equity strategy led by
former SAC man David Morant; the TT Long/Short Focus vehicle,
managed by Victor Kumar; Henderson’s new (and
already closed) Volantis Catalyst small-cap activist fund; and
Sloane Robinson’s SR Global Emerging Markets
Former JP Morgan investment bank head Bill
Winters’ Renshaw Bay operation also provided a
significant new launch during the year in the structured
finance space, while former Centaurus manager Patrick
Bierbaum’s Swiss-based PSquared event-driven
launch also attracted strong investor interest.
In the credit, fixed-income and macro area other notable new
start-ups during the year included former Deutsche credit
trading head Antoine Cornut’s Camares and
ex-Canyon London chief Mans Larsson’s Makuria.
And there were also two interesting new Nordic entrants with
a strong institutional flavour: Crescit, a Swedish-based fund
run by ex-Skanska pension fund managers; and Stockholm and
Oslo-based Nordkinn, led by the former co-heads of asset
management at Ericsson Treasury.
So, for all the difficulties in raising investor assets for
new funds and despite the ever-rising cost of launching a new
fund, there is still an impressive amount of new blood coming
into the industry – from firms that can demonstrate a
strong investment pedigree, a high-quality institutional
infrastructure and an identifiable edge. It is not easy, but it
can be done.