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TOP 50 HEDGE FUNDS: ASSETS UNDER MANAGEMENT GROW BY 11% IN 2002
 

By Antoine Bernheim, Publisher. This article appeared in the February 2003 issue of Hedge Fund News┐.

Each year, we take an early pulse of the industry in our confidential survey of the 50 largest hedge funds, representing current assets in excess of $140 billion. In 2002, 36 among the top 50 were profitable and 14 had losses, including 6 with double-digit losses. The median return to investors was 5% and the net return weighted by capital was 6% (compared to the 2.9% median return for 2002 of single manager offshore hedge funds reported as of this writing on hedgefundnews.com). The range of returns was 30% to ┐25% and the distribution was the narrowest in the seven years we have done this survey. The 50 largest hedge funds generated net profits to investors of approximately $7.7 billion and $3.2 billion in incentive compensation to managers.

2002 results of the 50 largest hedge funds

2002 Net Return after all Fees

Number of Hedge Funds

Capital @
1/1/03 in
$ million

Capital @ 1/1/02 in
$ million

> 20%

6

26,598

19,234

10% to 20%

8

20,963

17,004

5% to 10%

11

40,692

32,515

0% to 5%

11

24,709

21,558

0% to -5%

3

8,777

10,040

-5 to -10%

5

13,150

16,300

<-10%

6

7,150

10,844

Total

50

142,039

127,495

THE TOP 50 MEDIAN STATISTICS

Median Equity

Median

Return

S&P 500

2002

$2.40B

5.0%

-22.1%

2001

$2.50B

11.5%

-11.9%

2000

$1.70B

12.5%

-9.1%

1999

$1.90B

32.4%

21.0%

1998

$1.39B

9.5%

28.6%

1997

$1.27B

20%

33.4%

1996

$0.60B

21%

22.9%

Assets under management rose by 11%, a lower rate of increase than the 18% reported in 2001 in the same survey. Approximately half of the increase in assets came from performance and half from capital inflows. We estimate that 30 of the 50 largest hedge funds raised $14 billion in new capital and, among those, the median figure for capital raised represented 20% of capital at the beginning of the year. The other 20 hedge funds in our survey had net withdrawals of $6 billion and, among those, the median figure for capital withdrawn represented 14% of their capital at the beginning of the year. Our survey indicates that 5 hedge fund groups raised capital in excess of $1 billion in 2002 compared to 8 in the same survey a year ago.

For the second year in a row, no hedge fund organization reported assets in excess of $10 billion. The median size among the 50 largest hedge funds at the beginning of 2003 declined to $2.4 billion from $2.5 billion a year earlier. The major reason for this has to do with capacity limitations as more funds cease to accept new capital. A couple actually returned capital to investors in 2002.

After four consecutive years of handily beating equities, hedge funds have solidified their position as a viable asset class, reinforcing the continued interest of distributors of financial products. As a result, the investor base continues to shift from wealthy families to less-heeled funds of funds┐ investors, institutions with different fiduciary obligations, and managers of structured products. While there are exceptions, primarily among macro-oriented funds, large hedge funds, as a group, have responded to this shift by lowering their risk profile. We are increasingly seeing the signs of the formation of a two-tier industry with managers catering primarily to traditional hedge fund investors seeking to maximize performance and limiting capacity, while others aim at lower returns and emphasize the consistency needed to satisfy the requirements of their more recent, large investors. u

 
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