Hedge-fund assets will likely drop by about US$192 billion this quarter after the industry posted record losses last year, estimates by UBS AG showed.
Global assets will likely fall to US$1.215 trillion in the first quarter, said Timothy Bell, head of hedge-funds advisory at UBS’ wealth management unit in London.
Hedge-fund investors withdrew a record US$152 billion in the fourth quarter, pushing industry assets to US$1.407 trillion at the end of last year, Hedge Fund Research Inc said.
“That trend is going to keep going certainly till the end of this first quarter,” Bell told reporters in Singapore yesterday. “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 last year, 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 US$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 US$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.
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