Hedge fund giants secure grip on industry despite lagging returns

Sun Jun 1, 2014 2:47am EDT
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By Simon Jessop

LONDON (Reuters) - The world's biggest hedge funds are managing more money than ever before - even while the returns they provide look less attractive compared to those achieved by younger, smaller firms.

Large institutions managing money for wealthy individuals have always tended to look towards well-established money managers but this trend has become more pronounced following the financial crisis.

According to data from industry tracker Preqin some 90 percent of assets are now held by just 505 funds worth at least $1 billion. This means a record concentration of assets - much of the industry's nearly $3 trillion - in older and larger funds, hedge fund database eVestment said.[ID:nL6N0O136A]

As a result young funds are finding it even more difficult to attract clients in an environment that is tougher than it has ever been.

The combination of more demanding clients, higher regulatory costs and the fallout from the financial crisis saw the number of young hedge funds with a 10 month record of managing money fall from a peak of 1,610 in 2007 to 492 in 2013, eVestment data showed.

"It is more difficult for younger funds, if they're not launching with enough assets, to ... get started at all," said Peter Laurelli, vice president of research at eVestment.

However, the study by eVestment, using data from its database of 7,700 funds, showed funds under two years old, outperformed those aged two to five years or older.

Young funds had the highest cumulative return from January 2003 to December 2013, at 210.56 percent. The mid-age index came in second at 128.93 percent and the oldest, or 'tenured' funds posted returns of 123.69 percent, it said.   Continued...

U.S. one-hundred dollar bills are seen in this photo illustration at a bank in Seoul August 2, 2013. Picture taken August 2, 2013. REUTERS/Kim Hong-Ji