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London versus New York, Hedge Funds and PE

Interesting stats and facts coming out of the hedge fund and private equity worlds this week.

First, Hedge Fund Research
(HFR) released their year end report of inflows and outflows to the
hedge fund markets in 2007.  The headline is that The hedge fund
industry attracted a record $194.5 billion in new
investor capital in 2007, bringing total assets under management to
$1.87 trillion.  This is a 54% rise year-on-year, representing a $68
billion increase in new funds over 2006. 

It would have been
even higher if the fourth quarter had not disappointed.  That’s not
surprising considering the credit crunch but – at just over $30 billion
for the quarter compared to over $50 billion a quarter previously –
demonstrates the tough market conditions that are prevailng through
January.

The critical facts and stats in the detail include:

  • equity
    hedge strategies are the #1 strategy in terms of assets ($507 billion),
    with relative value arbitrage strategies taking second spot ($273
    billion) from event-driven strategies ($244 billion);
  • the
    latter categories are attracting the majority of new funds with
    relative value arbitrage taking in almost $45.9 billion in new funds in
    2007, the largest asset strategy for new funds;
  • $798.6 billion is invested in funds  of funds globally, with total assets up nearly 22% over 2006;
  • most funds have a European focus, although 10% is going into Asia; and
  • equity Non-Hedge, Market Timing, and Fixed Income:Convertible Bonds, all saw outflows for the fourth quarter.

All
in all, it is clear that hedge funds are attracting and managing much
of the liquidity and capital flow, and hence these are the major market
players of the 21st century.  And the good news for some is that it’s
all based in London.

Mind you, there is another market that is thriving out there as well.  The Private Equity market of course.

According to Private Equity International magazine,
the top 50 firms have raised over $550 billion in equity capital since
2002, with each firm managing around $11 billion on average.  Top PE
firms include the Carlyle Group, Kohlberg Kravis Roberts, Goldman
Sachs, Blackstone and TPG.  We then find that, according to Preqin’s 2008 Global Private Equity  Review,
1 in every 6 private equity (PE) professionals are based in New York.
That’s about 13,200 big swingers, compared to only 7,100 in London.  In
fact, 45,000 of the 76,700 PE professionals are US-based, or almost
60%. 

A few other stats of interest included:

  • a third of the world’s total are venture capitalists, whilst a quarter are buy-out firms; and
  • firms
    managing under $250 million in assets employ nine people on average
    compared to those managing more than $10 billion who average 179.

So
I’m avoiding too much economic commentary but, considering these two
groups leverage their assets by investing 10 times their weight, we are
looking at firms which influence over $20 trillion in assets.  No
wonder the NYSE and FTSE are up and down like yo-yo’s.

Meanwhile,
that old nugget of London versus New York rears it’s head over the
parapets.  I guess, $1.87 trillion in assets versus $550 billion means
that London wins?

About Chris M Skinner

Chris M Skinner

Chris Skinner is best known as an independent commentator on the financial markets through his blog, the Finanser.com, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal’s Financial News. To learn more click here…

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