Only half as many new hedge funds began trading in the first six months of 2008 as in the same period last year, with the largest launches grabbing a bigger share of new capital raised.
While fewer new fund launches may sound bearish for employment prospects in the sector, the immediate effect is likely only marginal, because hedge funds - especially new ones - tend to run very lean in headcount. Newer funds typically don't staff up until they have a year or two of returns (and fees) under their belt.
Concentration of capital in larger funds might stem from cautious fund investors flocking to the most established names at a time when many previously successful strategies are faltering. A composite index of hedge fund returns compiled by Hedge Fund Research posted a loss of 0.75 percent in this year's first half. That marked the industry's worst performance in almost 20 years, according to Financial News.
According to Absolute Return magazine's survey as reported by FINalternatives, the top five funds that launched in the first half of 2008 raised $13.7 billion, 70 percent of the $19.5 billion total. In all, 35 funds began trading through July, down 50 percent over the same period last year. However, these funds raised 40 percent more money at launch than those launching during the first half of 2007. Nearly half of the capital raised this year can be attributed to Goldman Sachs' $7 billion GS Investment Partners fund.
After Goldman, Greenwich, Conn.-based Conatus Capital Management's Conatus Capital Partners launched at $2.3 billion, followed by Lone Pine Capital's emerging markets Lone Dragon Pine fund at $1.8 billion. Chicago-based Highliner Investment Group's Alyeska Fund was fourth at $1.5 billion. The majority of funds launched this year were focused on equity long/short, mortgage-backed securities and distressed debt investing.