New hedge fund launches in the United States have slowed down for a second year in a row. Last year, the 86 largest hedge fund launches raised $31 billion, down from $34 billion raised by 82 funds during 2005 and $40 billion by 81 funds in 2004, according to the Absolute Return New Funds Survey for 2006, published in the February issue of Absolute Return magazine.
Most of the launches were in the first six months of the year, say the editors of the magazine. But after the equity market meltdown last spring and summer hammered hedge funds, and Amaranth Advisors collapsed in the autumn, it became harder to raise money.
Only 29 funds raising at least $50 million – the minimum required to be included in the survey – were launched during the second half of the year. These funds raised a mere $6.2 billion, or 20% of the total.
For the year, six new funds raised more than $1 billion. The biggest launch of the year, Convexity Capital, set a new record in terms of assets for its $6.3 billion fund launch last February. Convexity was founded by Jack Meyer, the former Harvard University endowment money manager.
The second largest launch in 2006 was Old Lane Management’s Old Lane fund, launched in April with $3.7 billion. It finished the year with roughly the same amount. The multi-strategy fund’s founders include Vikram Pandit, John Havens and Guru Ramakrishnan – a high-profile trio from Morgan Stanley.
Only one of the six launches raising more than $1 billion emerged in the last two quarters of 2006. Dillon Read Capital Management’s Dillon Read Financial Products was launched in the autumn and finished the year with $1.3 billion. The new hedge fund platform for UBS was founded by John Costas, who stepped down as the head of UBS’s global investment bank in June 2005 to lead the venture, along with Michael Hutchins and Kenneth Karl.
Absolute REturn editors say a closer look suggests billion-dollar mega-launches are alive and well – but only for the right pedigree. Seven of the top ten launches were new funds by established players, more evidence that the big, established names will continue to get bigger. The trend for larger megalaunches in the past few years is likely to continue if institutional investors – pensions and endowments more so than funds of funds – continue to invest in hedge funds.
For the first time in the survey, fixed-income and high-yield funds surpassed equity and multi-strategy hedge funds in raising assets, amassing $9.8 billion among 14 funds. Multistrategy funds came in second with $8.1 billion in 17 funds, down from $11.5 billion in 11 funds last year. Distressed funds took in $1.9 billion in three funds, a huge drop from the $9 billion they garnered through the same number of launches in 2005.