Introduction

In our sixth monthly review of the global hedge fund industry, we revisit some of our previous analyses, such as strategic asset flows, distribution of new fund launches and performance comparisons, and also conduct new studies into areas such as average life span, survivorship and capital inflows into the different regions.

The last decade witnessed strong movements and dramatic trends in the global hedge fund sector. After seven years of exponential growth, the assets under management peaked in 2007 at US$1.95 trillion – a seven-fold increase from the start of 2000. However, the growth trend reversed in 2008 amid the credit crunch, collapse of large financial institutions, high-profile frauds and the subsequent financial crisis. The drying up of liquidity, heightened risk aversion and resultant widespread redemptions culminated in the worst yearly performance for the industry – the Eurekahedge Hedge Fund Index lost 11.2% in 2008. Additionally, performance-based losses led to further negative asset flows, which resulted in greater losses as managers were forced to sell potentially winning positions. The industry reached its nadir in March 2009, with assets under management falling to US$1.29 trillion – a drawdown of 33%.

The industry rebounded after the first quarter of 2009 and witnessed some strong inflows amid strong rallies in underlying markets. Hedge funds across all regions and strategies delivered positive returns for the year, with some indices posting record gains.

Figure 1 shows the growth in the number of funds and assets over the past decade.

Figure 1: Growth of the Global Hedge Fund Industry over the Years
 

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