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FIVE YEAR SURVEY OF OFFSHORE HEDGE FUNDS AS OF 12/31/97
 

By Antoine Bernheim, Publisher. This article appeared in the May 1998 issue of Hedge Fund News?.

This article presents the results of our annual updated survey of offshore hedge funds. The salient facts are presented below and in the accompanying tables:

1998

1997

1996

1995

1994

Single Manager Funds @BOY

448

375

308

248

197

Capital @ BOY (in $ billion)

$70.6

$49.4

$34.8

$30.2

$34.9

Funds with BOY capital > $100M

111

82

52

47

41

5 largest funds as % of total

29.4%

35.4%

42.9%

38.9%

45.9%

Funds opened during year

?

106

80

70

68

Funds closed during year

?

27

27

29

33

Capital weighted rate of return

?

25.0%

20.3%

20.3%

-8.8%

Record size achieved: In 1997, capital in offshore hedge funds reached a new high with a $21 billion (43%) increase over 1996. Performance accounted for approximately 60% of the growth and net capital inflows for 40%. Net inflows, however, did not match the 1993 record. The number of offshore hedge funds continues to grow by approximately 20% annually.

Increased diversification of capital: The significant increase in the number of large funds offers more valid options to investors and has caused concentration among the top players to continue to decline. The five largest funds account for 29% of total capital vs. more than 50% in years prior to 1993. The number of funds with capital in excess of $100 million has increased disproportionately over the past two years and now account for 25% of the total number of funds (vs. an average of 20% in past years) and 87% of total capital. There are now fourteen offshore hedge funds with capital in excess of $1 billion representing 45% of total capital.

Performance: While not matching the S&P 500 over the five year period ended December 31, 1997, investors in offshore hedge funds have done well and actually beaten the S&P over the 1991-1997 seven year period .

Offshore Hedge Funds vs. S&P 500
Annual compound rate of return over calendar years
(weighted by capital at the beginning of each year)

1 year

3 years

5 years

7 years

Hedge Funds

25.0%

21.8%

18.7%

23.1%

S&P 500

33.4%

31.2%

20.3%

19.7%

Efficient allocation of capital: Money flows to performance and the increase in size improves the ability to attract talent and diversify among broader markets. The funds which have become the largest are those which performed better as a group in 1996 and 1997. The table below shows an average of the track records of funds in three different ranges of size based on their current capital. Only funds which operated for the full calendar years 1996 and 1997 are included in the average performance figures.

Breakdown by fund size
(based on capital as of 1/1/98)

over $1billion

$100million to $1billion

under $100 million

# of funds

14

97

337

Average size (in million)

$2,300

$310

$26

% of total capital

45%

42%

13%

1997 average performance

27.1%

21.9%

15.9%

1996 average performance

29.4%

24.3%

20.4%

Increased capacity constraints: a growing number of funds are closing to new investors and in a few cases returning capital to existing investors in order to maintain maneuverability. This phenomenon, together with the retirement of some managers, has contributed to the redeployment of capital among a larger number of managers. This has greatly facilitated the start-up of $100 million + funds by managers with the right pedigree and the rapid capital growth of funds with a relatively short track record.

Less casualties: as a result of the bull market, funds survive longer and the attrition factor declined to 7.2% in 1997 from 9% in 1996 and an average of 11% in prior years. uA.B.

 
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