Preqin’s Hedge Fund Analyst tracks 76 Nordic-based hedge fund managers that have combined assets under management (AUM) of around $43bn, approximately 5.2% of total hedge fund assets in Europe. While the Nordic hedge fund industry is relatively small, it deserves some inspection as it is an interesting sub-section of the European landscape.
Considering it was the first of the Nordic countries to put measures in place for marketing domestic funds, it makes sense that Sweden is the centre of the hedge fund activity within the region, both in terms of assets under management and concentration of managers. Around 63% of all Nordic-based firms are headquartered in Sweden, and with approximately $38bn in AUM, these firms control around 88% of the total Nordic assets. Two of the largest Swedish fund managers are Brummer & Partners, which launched the very first Swedish hedge fund in 1996, and Cevian Capital, one of the largest activist fund managers in the world.
Norway is the second largest Nordic hub after Sweden, although it has been slightly more prohibitive when it comes to hedge funds; restrictions on marketing onshore vehicles to institutional investors were only lifted in 2010. According to Preqin data, there are currently 12 firms, 25 funds and approximately $2.9bn in the Norwegian hedge fund industry. Denmark has 10 hedge fund managers, which manage around $1.2bn, and there are six managers based in Finland with approximately $888mn in AUM.
According to Preqin’s Hedge Fund Analyst, long/short strategies are the most utilized by Nordic fund managers, with around 33% of all funds managed by Nordic-based managers using a long/short strategy. Macro strategies and multi-strategy are also commonly utilized approaches, with approximately 30% and 22% using these strategies respectively. Relative value and event driven strategies are less prevalent, with just 11% and 2% of market share respectively.
Nordic-based funds have marginally underperformed the hedge fund average in recent years, but they are showing signs of improvement in 2014. In 2012 and 2013, returns were 10.61% and 11.73% respectively for all hedge funds, compared to 7.41% and 8.74% for Nordic-based funds. However, year-to-date figures for 2014 (as of 30 June), show that Nordic-based hedge funds have achieved five positive months of performance and average returns of 3.27%, marginally behind the overall hedge fund average of 3.86%. Nordic funds have also offered lower volatility than the benchmark, with a five-year trading volatility of 3.56% compared to 5.45% for all hedge funds.
There is no doubt that Sweden is leading the way for Nordic hedge funds, with almost 90% of the total AUM in the region. Long/short and macro strategies are the most favoured by Nordic managers, with event driven strategies notably less common. However, event driven strategies have been performing well recently, and it could be said that Nordic fund managers are perhaps missing out on untapped potential returns within the event driven space. Traditionally, Nordic hedge funds have primarily sought allocations from domestic investors but after posting solid returns so far this year and with lower average management fees than the rest of the industry (1.43% compared to 1.53%), it would not be illogical to assume that Nordic fund managers may be set to expand their fund ranges in anticipation of increased international investment.