Research

2012 Key Trends in European Hedge Funds

Introduction

European hedge funds have witnessed a challenging investment environment over the last two years amid heightened volatility, recessionary pressures and concerns over the European sovereign debt situation. While facing increased regulations from governments, the industry also saw net redemptions by investors in 2011 and 2012. The region’s hedge funds have adapted to the changed landscape through implementing various changes and as of end-September 2012 the Eurekahedge European Hedge Fund Index remains in positive territory for the year with gains of 4.48%.

In the eight years preceding the financial crisis, the industry witnessed strong growth as total assets under management (AUM) grew from US$39 billion in 2000 to over US$470 billion by mid-2008 while the number of funds increased from 470 to more than 3700 over the same period of time. As the financial crisis unfolded in 2008, European hedge funds came under significant pressure due to increasing redemption requests and portfolio losses. Industry assets declined by more than 30% to US$293.6 billion between June 2008 and March 2009.

Figure 1: Industry growth over the years
  

As shown in figure 1b, the sector rebounded remarkably in the latter half of 2009, posting excellent gains of 20.36% while also attracting significant capital from investors. Growth continued through 2010 but stalled in 2011 as the European sovereign debt crisis unfolded.

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