The good news for hedge fund managers is that worldwide institutional investor search and hiring activity remained positive so far this year. The bad news is that the days of easy-to-win, easy-to-hold institutional capital are history.
But while net searches and hires are still in positive territory, the pace has slowed for the first time in five years.
Reported searches and hires topped $20 billion annually from 2004 when Pensions & Investments first started tracking institutional hedge fund data through 2006, culminating in a record $66 billion in 2007.
In 2008, by contrast, pension funds, endowments, foundations and sovereign wealth funds sought to put $36 billion with hedge fund managers, down 45% from the prior year.
And judging by activity in the first five months of this year, the pace of hedge fund activity slowed significantly more. Year-to-date May 31, institutions hired or sought hedge fund managers for $7.5 billion, a 58% decline from the $18.1 billion they put in play in from January to May 2008.
Postponed and canceled hedge fund searches starting in the third quarter of 2008 illustrate how the once-easy institutional money is now a thing of the past.
Executives pulled the plug on 18 searches beginning in the third quarter, citing concern over the global market meltdown that began in September. Of those, nine were green-lighted during the first half of this year. Manager terminations also surfaced in the last half of 2008, something not seen since P&I began its tracking in 2004. Reported terminations totaled $263 million, mainly for performance.
Then, the first five months of 2009 saw a swarm of terminations of hedge fund-of-fund managers with exposure to feeder funds connected to Bernard L. Madoff Investment Securities LLC, New York. Terminations reported through the end of May totaled $873 million.