Large redemptions and the closing of a few well-known hedge funds have had minimal impact on U.S. institutional investors and their favored hedge fund-of-funds managers.
Sources said that's because outflows have mostly been from single-strategy hedge funds, mainly convertible arbitrage and relative value managers. (Convertible arbitrage managers lost more assets in the first six months of this year than any other strategy — net outflows were $5.1 billion or 15% of total assets managed as of Dec. 31, according to Hedge Fund Research Inc., Chicago).
Leveraged funds of funds were hit hardest by the poor returns in convertibles. Some had to liquidate some hedge fund holdings because of margin calls from their lenders and redemptions of "hot money" from high-net-worth investors.
Consultants said U.S. institutional investors and fund-of-funds managers had little exposure to firms like Vega Asset Management (USA) LLC, New York, which had redemptions of about $700 million from its three relative value hedge funds in June alone. According to the firm's June client letter, which was obtained by Pensions & Investments, Vega's assets under management fell to $6.7 billion as of June 30, down from a high of $10.4 billion in July 2004.
U.S. institutional investors also had little money invested with two convertible arbitrage managers that closed their doors and returned money to investors: Bailey Coates Asset Management LLP, London; and Marin Capital Partners LP, San Rafael, Calif.