Greenwich Associates Report Says Many HFs Lag Behind High-Water Marks

A recent study by Greenwich Associates shows that almost half of managers said one or more of their hedge funds was below the asset peak it must return to before performance fees can be charged, as of the first quarter.

(November 1, 2010) — While the average hedge fund may have finally reached its high-water mark, little more than half of hedge funds are average or above, a new report by Greenwich Associates has revealed.

The 2010 Greenwich Associates/Global Custodian Prime Brokerage Study showed that approximately 45% of hedge fund managers in the US and approximately half of hedge funds in Europe and Asia said one or more of their funds remain below their high-water marks. Most hedge funds are unable to begin charging their 20% of total profits performance fees again until previous losses have been recouped.

The results show that despite a period of strong investment performance, the hedge fund industry is still struggling through the aftermath of the financial crisis.

The figures showed that almost 55% of the US hedge funds participating in the study and 35-40% of hedge funds in Europe and Asia reported performance of 20% or better from the first quarter of 2009 to the first quarter of 2010. Globally, nearly 70% of hedge funds delivered investment returns of 11% or better and nine out of 10 reported positive performance for the 12- month period.

“The fact that so many funds remain under their high-water marks after a period of historically strong market performance demonstrates how great an impact this crisis had on hedge funds of all sizes and strategies,” John Feng, a Greenwich consultant, said in the report.

While assets from endowments and foundations fell to 12% from 14% in 2009, stakes owned by corporate pension funds decreased to 8% from 9%, and shares held by hedge funds of funds dropped to 23% from 26%, the report said. The only category whose portion of assets rose: public pension funds, which increased to 9% from 8%.

To complete the study, the Connecticut-based research and consulting firm surveyed 1,800 funds.

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