Hedge-Fund Assets Set to Drop $192 Billion by March, UBS Says
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By Netty Ismail
Feb. 17 (Bloomberg) -- Hedge-fund assets will likely drop by about $192 billion this quarter after the industry posted record losses in 2008, according to estimates by UBS AG.
Global assets will likely fall to $1.215 trillion in the first quarter, said Timothy Bell, London-based head of hedge- funds advisory at UBS’s wealth management unit. Hedge-fund investors withdrew a record $152 billion in the fourth quarter, pushing industry assets to $1.407 trillion at the end of 2008, according to Hedge Fund Research Inc.
“That trend is going to keep going certainly till the end of this first quarter,” Bell told reporters in Singapore today. “Trust will be reestablished by mid-year, provided the hedge fund industry does what it’s meant to do; January was a shining example of the lack of correlation.”
Hedge funds had an average return of 0.4 percent in January, compared with an 8.6 percent plunge in the Standard & Poor’s 500 Index. Investments by hedge funds lost about 19 percent last year, according to Chicago-based Hedge Fund Research, the most since it began tracking data in 1990. Assets peaked at $1.93 trillion in June.
“The compound growth rate in 2005 to 2007 was 35 percent per annum,” Bell said. “If you extrapolate that over 10 years it can get to $26 trillion; it can’t keep growing at the rate.”
Still, the industry will likely emerge stronger this year with less competition after hedge-fund assets and banks’ proprietary trading desks shrank, Bell said.
“You’ve got less capital and better trading opportunities,” Bell said. “You’re seeing systemic risks being reduced” after governments injected liquidity into the system to counter stalling global growth, he said.
Hedge-fund strategies such as equity and macro, which typically invests in highly liquid markets such as currencies and bonds, will gain in popularity, Bell said.
Other strategies including convertible arbitrage will no longer be viable because of the reduced availability and higher cost of leverage, he said. In a convertible arbitrage, a fund buys convertible bonds, which can be converted into shares at a certain price, and then sells short the underlying stock. |
