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Hedge Fund Losses and Closures in 2008 2009

admin — Tue, 27 Jan 2009 22:52:00 +0000

Hedge Fund Losses

Hedge Fund Losses in 2008 2009

Here is a video below on hedge fund asset losses and closures. While there is a small set of institutional investors investing in a number of opportunistic hedge funds most are still loosing assets each quarter. Many firms were profitable just 2-3 years ago and now have less assets to manage and little if any performance fees to collect. If you are reading this article over email through our daily hedge fund newsletter please click here to watch the embedded video below.

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Hedge Fund Statistics | Video Interview on Closures & Redemptions

admin — Thu, 04 Dec 2008 19:57:00 +0000

Hedge Fund Statistics

Video Interview on Closures & Redemptions

Here is a short video interview with a Yale professor who is an expert on hedge funds. He estimates that the industry will shrink by another 25% next year due to poor markets, volatility and low liquidity across many asset classes. He also discusses hedge fund redemption rates and how many institutions need to raise cash and many have lost some faith in hedge funds. This means that many hedge funds have had to restrict the securities which they own so they can meet redemption requests. The reporter also discusses how many hedge funds have been slashing fees to attract more investors.

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Epic Capital Management LP | Hedge Fund Notes

admin — Thu, 23 Oct 2008 15:05:00 +0000

Epic Capital Management LP

Epic Capital Management LP | Hedge Fund Notes

The following piece on Epic Capital Management LP is being published as part of our Hedge Fund Tracker Tool, our daily effort to track hedge funds in the industry.

Resource #1: (10.28.08) Toronto-based Epic Capital Management is shuttering its flagship hedge fund as returns sink and investors head for the door.

Epic, which focuses on mid-cap Canadian companies, has seen the flagship fall by 38% this year, leading many investors to seek redemptions, the Globe and Mail reports. The fund’s assets have fallen by C$100 million amidst the market volatility, leading the firm to seek investor approval for a liquidation.

“We wanted to do it while we could and didn’t have a gun to our head,” Epic CEO David Fawcett said. Source

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Hedge Fund vs. Bank Blowups | 1 Page Analysis

admin — Tue, 30 Sep 2008 01:41:00 +0000

Hedge Fund Blowups

Hedge Fund Vs. Bank Blowups

Last week a member of a hedge fund professionals networking group on LinkedIn asked a question about why we have seen more investment bank blow ups than hedge funds.

In the past 2 years there have, of course, been hedge fund blow ups starting with Amaranth in September 2006. Unlike troubled investment banks not all hedge funds suffering losses and closing downs receive press coverage. We have seen a few notable names, such as hedge funds managed by Bear Stearns, Sowood, Peloton and a few others mentioned in the papers. Many more troubled hedge funds managed to avoid major headlines. It’s not necessarily clear what exactly constitutes a hedge fund blow up. For the names mentioned above the loss was sudden and quick and resulted in eventual termination of the funds. Amaranth lost close to six billion dollars in just one week. Peloton earned a spectacular return of almost 90% in 2007 just two months before the blow up. These, however, are extreme cases. Many hedge funds suffer the slow death as they enter into periods of large draw downs. In this study we tried to identify hedge funds that have terminated since January 2008.

To analyze the rate of failure among hedge funds this year, we ran the analysis on the universe of hedge funds, fund o funds and CTA that report to Barclay’s Global Data Feeder database. To identify the blown up funds we first looked at the funds that stopped reporting performance to the database. We realize that there may be various reasons why a hedge fund would stop reporting to the database, but we believe that primary reason would be a significant drop in performance. To avoid double counting we focused primarily on the “On Shore” funds reporting performance in United States Dollars. There were 3,998 funds that reported performance at the beginning of the year. Of these funds 366 have not reported their performance since May 31, 2008. Chart 1 shows the distribution of the cumulative return of these funds since January 2007 (or later if the funds launched after January 2007).

Out of the 364 funds -156 funds or (43%) have had negative cumulative performance through their last reported date. Chart 2 shows the distribution of Maximum draw down achieved during the same period.

As we mentioned above we cannot be sure whether or not the funds that stopped reporting to Barclay’s database have indeed blown up. We do, however, consider it likely that hedge funds that stopped reporting after experiencing an extreme drawdown are in a “blow up” situation. Chart 2 shows that almost a third of the funds have experienced a drawdown of 15% or higher. This brings our estimate of defaulted funds to 2.5% or (100 out of 4,000).

Given the current market environment the estimate seems low. One factor that may account for relatively low blow up rate is the hedge fund liquidity. As an asset class, hedge funds enjoy the benefit of providing relatively stable asset base that is protected by long lock ups, strict redemption schedule, and withdrawal fees. Given these restrictions hedge funds that experience large losses are able to survive longer. It’s generally expected that the industry will experience significant redemptions at the end of the year, which may bring to the run on many hedge funds and lead to higher blow up rate. In the future issues of this newsletter we will attempt to examine the factors that may be helpful in identifying potential blow ups.

Guest post by Aleksey Matiychenko of Risk-AL, LLC

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