Hedge Funds Shrink by $64 Billion, Eurekahedge Says

By Tomoko Yamazaki

Dec. 11 (Bloomberg) -- The global hedge-fund industry lost $64 billion of assets in November, with an index tracking its performance declining for a sixth month as economies in Asia and Europe joined the U.S. in recession, Eurekahedge Pte said.

“It's very clear that there is going to be significant consolidation in the hedge-fund industry,” said Duncan Smith, a partner in Hong Kong at Ogier, a firm that provides corporate and legal services to financial companies. “Conditions are quite difficult and that really goes without saying. Underlying liquidity is very hard for funds.”

Market declines contributed to $18 billion in net losses, while investor redemptions made up $46 billion, Singapore-based Eurekahedge said, based on preliminary figures taken from 41 percent of the funds it surveys. It said hedge-fund assets shrank by $110 billion to $1.65 trillion in October.

The slump takes declines to 13 percent this year as hedge funds accelerate job cuts and brace for the biggest annual losses and investor withdrawals since at least 2000, according to Eurekahedge data. Funds including Chicago-based Citadel Investment Group LLC, run by Kenneth Griffin, have been forced to liquidate funds, limit withdrawals and eliminate jobs.

Hedge funds fell 0.4 percent on average in November, as measured by the Eurekahedge Hedge Fund Index, which tracks the performance of more than 2,000 funds that invest globally. The final figure for the month may be a 2 percent decline, said Eurekahedge, which typically receives data from poorer performing funds later.

Distressed Selling

Hedge-fund industry assets peaked at $1.9 trillion in June, data compiled by Chicago-based Hedge Fund Research Inc. show. Investment losses and withdrawals may shrink that amount by 45 percent by the end of this month, according to estimates by analysts at Morgan Stanley.

Distressed selling and the rollback of debt-funded investments continued to pull down funds as the credit crisis sent the U.S., Europe and Japan into the first simultaneous recession since World War II. The MSCI World Index slumped 6.7 percent last month.

Chicago-based Citadel will close its Tokyo office and cut other Asian operations, eliminating 37 jobs less than a year after adding people in the region.

Its two largest funds, Kensington and Wellington, are said to have lost 13 percent last month. The funds, which had a combined $10 billion in assets, received demands from investors to withdraw $1 billion by the end of the year, according to people familiar with the matter.

Och-Ziff, Ramius

Och-Ziff Capital Management Group LLC, the New York-based hedge-fund manager that went public last year, and New York-based Ramius LLC, founded in 1994 by former Shearson Lehman Brothers Chief Executive Officer Peter Cohen, are cutting jobs in Asia, people familiar with the plans have said.

In regional terms, the Eurekahedge Japan Hedge Fund Index was the best performer, gaining 0.8 percent last month, followed by an index measuring Latin America funds, which rose 0.7 percent. The measure tracking Asian hedge funds was little changed, gaining 0.1 percent.

Among Japan funds, the Myojo Japan Long Short Fund, run by Myojo Asset Management Japan Co., gained 1.4 percent in November on U.S. dollar-basis, according to a letter sent to investors. The gain cut its year-to-date loss to 7.4 percent.

Japan Outperforms

Wolver Hill Japan Multi-Strategy Fund rose 1.5 percent in November, based on preliminary figures, according to Rogers Investment Advisors Y.K., the Tokyo-based advisory firm for the fund of hedge funds focused on Japan. The gain brings the year- to-date advance to 2.5 percent. At least 11 of the 14 managers that make up the fund reported positive numbers last month, the highest ratio over the past two years, the firm said.

Sparx Japan Stocks Long Short Fund, also known as “Best Alpha” and ran by Sparx Group Co., Asia's biggest hedge-fund manager with $8.5 billion in assets, declined 1.2 percent in November, according to monthly data on the company's Web site.

The Eurekahedge Eastern Europe & Russia Hedge Fund Index was the worst performer, dropping 3.7 percent, while the North American and European indexes declined 2.1 percent and 0.6 percent, respectively, Eurekahedge said.

Managers that trade fixed income performed best in November, gaining 2.4 percent. Those trading futures, or CTAs, and so- called macro-fund managers, who wager on trends in stocks, bonds and currencies worldwide, advanced 2 percent and 1.1 percent.

Among the macro funds, PMA Harvester Fund, run by Hong Kong- based unit of Sparx, PMA Investment Advisors Ltd., gained 4.5 percent, bringing its year-to-date return to 27 percent, according to a company statement. The fund has grown to $245 million from $37 million this year. PMA's Temple Fund, which invests in credit markets, gained 0.9 percent, bringing its year- to-date advance to 10.6 percent, the statement said.

By contrast, the index measuring hedge funds investing in distressed debt was the worst performer, sliding 3.3 percent.

Hedge funds are mostly private pools of capital whose managers participate substantially in the profits from their speculation on whether the price of assets will rise or fall.

To contact the reporter on this story: Tomoko Yamazaki in Tokyo at tyamazaki@bloomberg.net