Global hedge funds assets declined more than 30% in 2008 to $1.8 trillion, according to a report issued by publisher HedgeFund Intelligence. The sharpest declines occurred in the second half of last year.
For instance, industry assets were about $2.7 trillion after the first six months of last year, and by December had declined to $1.8 trillion. Assets were $2.6 trillion at the start of 2008.
Losses are expected to continue into 2009, according to the report.
The sharp decline in assets under management came on the heels of poor fund performance industry-wide coupled with aggressive investor redemptions. The average returns from hedge funds last year was about -15%, according to the report. Assets are expected to decline another 20% or more from 2008 levels in the coming months before hitting a bottom, which, according to the report, is expected to occur this year.
In addition to shrinking assets under management, there was a decline in the number of funds being managed. For instance, the number of hedge funds managing assets under management of $1 billion or more declined from 395 in mid-2008 to 311 by year's end. The value of assets in this segment of the industry fell from $2.1 trillion to $1.4 trillion.
Assets under management fell most dramatically in the Asia-Pacific region last year, falling 36% from $190 billion to $122 billion. The reason is twofold: the most prominent hedge fund strategy in Asia is to invest in equities, an asset class that proved especially punishing last year. Secondly, Asia tends to have more lax liquidity terms than the U.S .or Europe and subsequently experienced high investor redemptions.
Additionally, the number of new hedge funds launched last year paled in comparison to 2007. In the U.S., there were only 55 new hedge funds launched with assets under management of $50 million or more in 2008 compared with 81 similarly valued hedge funds in 2007. In the U.S. and the Americas, at least 200 hedge funds closed their doors last year, while at least 153 hedge funds shut down in Europe, according to the report.