New European Hedge Funds Set $37.7 Billion Record

In 2006, European fund managers launched 423 new hedge funds, 250 of which were created in the second half. Altogether, they had $37.7 billion under management on the day they started to trade. This in itself is a significant result, suggesting that people aren't too worried about putting their money to work. At the same time, an analysis of the types of hedge funds established provide insight into what managers and their clients expect in the year ahead.

Macro funds, which essentially make bets on global market movements, have been popular in Europe in the last couple of years. In 2005, 23 new macro funds raised $3 billion. Last year, 30 new macro funds put together $1.9 billion. This suggests that fund managers think the macro field is target rich, but bets may need to be a bit smaller.

Equity funds, which are basically stock funds, still brought in the lion’s share of the capital. European equity funds launched had $5.7 billion in assets, while global funds were almost as big with $5.4 billion. Categorizing these is a bit tricky because the geo-economic definition of Europe varies from fund manager to fund manager. Nonetheless, about 30% of new hedge fund money backs equities as the vehicle of choice.

So-called “event-driven funds,” which play arbitrage games in takeover deals, came in bigger than ever. Europe had 27 new driven-driven funds in 2006 handing $8.5 billion in assets. Three of these funds are 800-pound gorillas: the $3 billion SRM Global, $2 billion Cevian Capital II and $1.1 billion Montrica Global Opportunities. This could signal that big deals in 2007 will be big for hedge funds, but this also skews the data in favor of event-driven funds.

Meanwhile, convertible arbitrage and distressed debt are almost gone as strategies if the new funds are anything upon which to base a judgment. Combined, there were but 5 such funds managing less than $500 million among them. However, these things go in cycles, and a year of tough corporate times could see a revival among these funds.

© Copyright 2007 by The Kensington Review, Jeff Myhre, PhD, Editor. No part of this publication may be reproduced without written consent. Produced using Fedora Linux.

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