Hedge-Fund Liquidations Jumped in 2012 on European Crisis

Hedge-Fund Liquidations Jumped in 2012 on European Crisis

Hedge-fund liquidations rose to a three-year high in 2012 as the European debt crisis and concerns about global economic growth hurt performance for the $2.3 trillion industry, according to Hedge Fund Research Inc.

The number of firms shut jumped to 873, the most since 2009, the Chicago-based data provider said in a statement today. Still, the net number of hedge funds increased after money managers started 1,108 firms last year, it said.

Smaller hedge funds have been hardest hit by the global financial turmoil that has made it more difficult to raise money from investors since the collapse of Lehman Brothers Holdings Inc. in 2008. Hedge funds managing more than $5 billion got 65 percent of the $3.4 billion of assets that flowed into the industry in last year’s fourth quarter while firms with less than $1 billion reaped 8.7 percent, Hedge Fund Research said.

“The capital-raising environment continued to be challenging for emerging managers, including both small and mid- sized funds, as well as newly launched funds,” Kenneth Heinz, Hedge Fund Research’s president, said in the statement. “To raise new investor capital, hedge funds must not only demonstrate both superior performance and an innovative strategy, but also increased organizational efficiencies.”

Hedge funds have historically charged investors a 2 percent fee to manage assets, while keeping 20 percent of any investment gains. Average industry management fees declined 1 basis point last year to 1.56 percent, while performance fees fell 17 basis points to 18.54 percent, Hedge Fund Research said.

More than a third of hedge funds that shut in 2012 invested in stocks, after the returns of equity-focused hedge funds on average failed to beat the Standard & Poor’s 500 Index (SPX) for a third straight year. Equity hedge funds rose 8 percent from 2009 through 2012, trailing the 36 percent gain for the S&P with dividends reinvested, data compiled by Bloomberg show.

The 238 hedge fund liquidations in the fourth quarter of 2012 was the highest over a quarterly period since 240 closed in the first three months of 2010, Hedge Fund Research said.

To contact the reporter on this story: Jesse Westbrook in London at jwestbrook1@bloomberg.net

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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