DJ European Hedge Funds Traded, Borrowed More In 2005-Report
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LONDON (Dow Jones)--European hedge funds increased their fixed-income trading activity last year and borrowed more cash to inflate their positions, according to research issued Thursday from U.S. consulting firm Greenwich Associates.
"The average European hedge fund portfolio manager traded $6 billion in fixed-income securities in the past 12 months, as opposed to the $5 billion average reported among all the European fixed-income investors interviewed for this year's research," Greenwich Associates consultant Peter D'Amario said in a statement.
The typical hedge fund surveyed by Greenwich Associates turned over its fixed-income portfolio three times, the survey found.
Half of the hedge funds said they applied more than three times leverage on their fixed-income portfolios, more than double the amount borrowing at that level when last surveyed in 2004.
Greenwich Associates conducted more than 1,500 interviews between May and July with investment professionals at banks, fund managers, insurance companies, corporations, central banks, hedge funds and other institutions in Europe.
Despite the additional leverage, returns for hedge funds in fixed-income strategies were flat in 2005, with the Hennessee Groups Fixed Income Index posting a 5.79% gain, compared with 5.31% in 2004.
The overall Hennessee Hedge Fund Index climbed 8% in 2005, against 8.25% in 2004.
The survey also found European hedge funds are increasingly turning to prime brokers, which provide their customers with securities lending, financing, foreign exchange and other services.
More than 80% of hedge fund respondents reported an active relationship with at least one prime broker, up from about two-thirds in 2004. On average, funds said they use two prime brokers.
Greenwich Associates said their data suggests competition is intensifying among hedge funds to attract new capital, and among prime brokers to gain hedge fund clients.
Hedge funds which cited capital introductions as an important element in choosing a prime broker doubled to 14%, from 7% in 2004.
"This shift clearly indicates that, as hedge funds proliferate in Europe, individual funds are having a tougher time attracting new capital," said Frank Feenstra, a Greenwich Associates consultant.
"This competition for assets is making it harder for hedge funds to build and even maintain assets under management, which in turn could be prompting them to increase leverage ratios and to trade more aggressively."
Data released Wednesday by Chicago-based Hedge Fund Research showed hedge fund outflows of $824 million in the fourth quarter of 2005, the first quarterly decline in more than 10 years.
HFR said hedge funds attracted just under $47 billion in new assets in 2005, bringing total industry assets to $1.105 trillion. |
