Data taken from the 2015 Preqin Global Hedge Fund Report indicates that Europe-based fund of hedge fund managers lost $27bn in assets under management over 2014. The overall decline in assets was accompanied by a fall in the number of fund launches. Preliminary figures for 2014 show that Europe-based fund of hedge funds managers launched only 20 new funds out of a total of 65 recorded globally, representing a new low for the European fund of hedge funds industry.
Preqin’s Hedge Fund Analyst tracks 263 Europe-based fund of hedge funds managers. The chart below illustrates that between 2007 and 2010, European multi-manager hedge fund launches represented between 36% and 39% of all funds of hedge funds launched globally. However, since 2010, market share has weakened, remaining around 31% (with the exception of 2013 when levels fell to 26%) before recovering slightly in 2014. In terms of absolute numbers, European fund of hedge funds launches reached a peak of 74 in 2007 and have been unable to reach the same heights since.
Though also experiencing lower numbers, the UK and Switzerland continue to dominate the fund of hedge funds marketplace in Europe. At a peak in 2007, these two countries together launched 44 multi-manager hedge funds, accounting for 59% of all European fund of hedge funds launches. In 2014, they launched only 15 funds but increased their market share to 75%; activity outside these two centres was at an all-time low last year, recording only five new fund launches.
Financial uncertainty and an unfavourable macro environment prevail in the Eurozone, suggesting that managers are focusing on existing funds rather than launching new vehicles. Meanwhile, firms located elsewhere, namely the US, have been able to leverage their reputation as a leading force in the industry, attracting the majority of investor capital and significantly strengthening their overall proportion of funds launched during this period. In 2014, 63% of all new fund of hedge fund vehicles were launched by North America-based managers, a significant increase from 46% in 2007.
The global fund of hedge funds industry continues to experience a general contraction, but fund of hedge fund managers based in Europe have experienced an even greater downturn. The current sensitivity of investors to hedge fund fees and the demand for other routes into hedge funds, such as managed accounts and liquid alternatives, may form other contributing factors in this decline. However, for some investors, these characteristics are more than offset by the diversification benefits and lower volatility these types of funds can offer. If Europe-based fund of hedge fund managers are able to successfully navigate such factors they may be able to generate enough investor interest to rekindle fund launch activity.