The largest hedge fund and absolute-return managers experienced strong inflows in 2006, according to Pensions & Investments’ annual survey of money managers.
Assets under management of the top 25 hedge fund managers as of Dec. 31 rose $98 billion or 30% to $420.4 billion, compared with year-end 2005. More than half of the increase in assets appears to be from new net inflows, given the 12.86% return of the Hedge Fund Research Inc. Fund Weighted Composite index for the year ended Dec. 31. In fact, the $420 billion managed by P&I’s top 25 equated to about 29% of the entire $1.43 trillion hedge fund industry’s assets as of Dec. 31, as estimated by Chicago-based HFR, a hedge fund researcher.
Overall, assets invested in hedge funds by all of the managers reporting for year-end 2006 grew 37%, to $771.3 billion.
Absolute-return strategies managed by the top 25 managers increased roughly $76 billion, or 14%, to $605 billion at the end of the year. And among all managers reporting, absolute-return investments grew 19% to $771.25 billion.
Each of the top five managers reported significant asset increases in worldwide assets in hedge funds. UBS Global Asset Management, Chicago, moved up to lead the pack from third place thanks to a $16.7 billion or 47% increase from the previous year to $52.2 billion as of Dec. 31. Although P&I’s survey data do not break out hedge fund-of-funds assets, hedge funds of funds accounted for about 83% of UBS’ assets. Internally managed single-strategy and multistrategy hedge funds totaled $8.7 billion.
Key component
Strong institutional demand for funds of funds and single hedge funds globally was behind the growth. “It continues to be a key and growing part of UBS Global Asset Management,” said Kris Kagel, spokesman. Goldman Sachs Group, New York, retained its second place slot, with $50.6 billion managed in worldwide hedge fund assets as of Dec. 31, a $14.5 billion, or 40%, increase. Hedge funds of funds accounted for $18.1 billion or 36% of total hedge fund assets, while internally managed single and multistrategy hedge funds totaled $32.5 billion. With $29 billion, Goldman Sachs was the largest manager of multistrategy hedge funds.
Bridgewater Associates Inc., Westport, Conn., moving to third place from fourth, managed all of its $30.2 billion internally in single-strategy hedge funds, an increase of $8.8 billion or 41%. Legg Mason Inc., Baltimore, also moved up one notch to fourth place with $29.2 billion in hedge fund assets. Legg Mason’s hedge fund assets rose $8.2 billion or 39% in 2006. Fully 98% of Legg Mason’s hedge fund assets were managed primarily in hedge funds of funds by its subsidiary, New York-based Permal Group, according to the company’s earnings reports for year-end 2006.
BNY Asset Management, New York, moved into sixth place from fifth with total hedge fund assets of $28.9 billion, an increase of $8.3 billion or 40%. BNY did not break out its hedge fund assets, but its Jericho, N.Y.-based subsidiary, Ivy Asset Management Corp., managed more than $15 billion in hedge fund-of-funds assets as of Dec. 31 (P&I, Jan. 8).
In the lead
Goldman Sachs remained unassailable at the top of P&I’s ranking of absolute-return managers with $107.3 billion, a $33.5 billion lead on its nearest rival. Goldman Sachs’ absolute-return assets increased by $16.6 billion or 18%. That inflow accounted for 17% of the firm’s total 2006 asset management inflows of $94 billion, said Suzanne Donohoe, head of North American client businesses.
“Our biggest drivers of growth have been from our global tactical asset allocation business, which has a very long track record —– more than 10 years. It is managed against a cash benchmark and it is designed to be uncorrelated with other major indexes. The length of the track record has been a big factor in our success with institutional investors,” Ms. Donohoe said.
Other factors included strong inflows to Goldman Sach’s direct hedge funds and hedge funds of funds, as well as to private equity funds of funds, said Ms. Donohoe. She pointed to the closing of a $3 billion secondary private equity fund of funds, an area that is traditionally capacity constrained.
“There are a lot if institutional investors with money they want to out to work in private equity and this fund was very successful,” Ms. Donohoe said.
“We’ve consciously built a very broad alternatives platform over the last 10 years and we’re seeing results now in growth,” she added.
UBS Global moved to second place from third, with $73.7 billion under management in absolute-return strategies, more than double the assets of third-place AIG Global Investment Group, New York. AIG moved up from fifth place in last year’s survey, with $34.6 billion in absolute-return strategies, followed by JPMorgan Asset Management, New York, which dropped to fourth place from second with $34 billion. New to the absolute return rankings was Schroder Investment Management North America Inc., New York, which rounded out the top five with $33.6 billion.
