The European hedge fund industry has witnessed significant trends over the last 13 years, starting with a period of strong growth, a broad-based decline in the industry and a recovery phase. In 2000 there were less than 500 European hedge funds with total assets under management (AUM) of US$39 billion. Over the next seven years the total number of funds increased tremendously to cross the 3,000 mark while AUM increased nearly twelvefold to reach a maximum of US$472.8 billion by October 2007.
During the 2008 global financial crisis the industry underwent a downturn, with the AUM declining by nearly 40% between January 2008 and March 2009, due to portfolio losses as well as heavy redemptions by investors. The Eurekahedge European Hedge Fund Index declined by 17.81% in 2008, while total assets declined to US$293.6 billion by March 2009. In the subsequent rebound in 2009 regional managers posted excellent results, gaining 20.26% for the year and attracting some positive net flows. By the end of 2009 total assets in European hedge funds had reached US$346.5 billion.
Figure 1: Industry growth since 2000
This recovery proved to be short-lived as the European debt issues soon came to the fore by mid-2010, although the industry still witnessed some positive asset flows in the second half of 2010. In 2011 regional hedge funds once again suffered from significant redemption pressure while also witnessing net declines in performance.