Hedge Fund Reader : Are Hedge Funds Going Down?

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March 09, 2006

Are Hedge Funds Going Down?

The skeptics, who have been on a look out for a bubble to break, were too keen on the housing market last year. However with some signs of lackluster performance from the capital market they have apparently turned their focus towards it. The key here is that the shady show did not come from segments such as stocks, bonds, oil, all of which closed the year on a positive note.

The problem child apparently was the hedge funds sector - the segment with over US $1.1 trillion in assets under management, which has witness growth literally doubling the industry size since 2000.

It was observed that by December 2005, the steam was venting out of the roaring hedge funds sector. The net money flows into hedge funds, which are investment pools available mainly to institutional and wealthy individual investors, were down 44% in the third quarter from a year earlier. And further they almost stagnated during the fourth quarter of the year.

With the flows drying up, there was a likewise effect on many hedge funds. According to reports by Chicago's Hedge Fund Research in December 2005, that through September 30 2005, a record number of hedge funds (484 funds), more than 6% of the total hedge funds segment, had been forced to shut down in 2005.

Although the figures for the fourth quarter are yet unavailable, reports are that they are worse than that of the third quarter. Many industry experts or you could say skeptics are gunning that this stage is potentially one of "recession for hedge funds". Many believe that the exact scenario in the hedge funds space could be worse than what the data indicates, as the numbers are clearly based on un-audited results, which are reported to industry groups.

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March 9, 2006 in Gossip & Scandal | Permalink