The number of funds launching in Europe has been low in recent years compared with pre-AIFMD levels. Preqin’s Hedge Fund Analyst shows that between 2009 and 2012, there was an average of 253 fund launches in Europe each year; but the advent of the AIFMD brought about a new wave of scepticism and hesitancy during 2013 and 2014, leading to fewer launches in the region. In 2013 and 2014, 173 and 151 hedge funds were launched in Europe respectively, showing a marked decline in the average number of hedge funds established in the region since 2012. It may be too early to tell how many more funds will launch at the start of this year as new data comes in, however, it would appear that the start of the year has forecasted a significant change in fortunes for the European hedge fund industry.
Return of the Mega Funds
Evidence of this change in fortunes comes in the form of the mega-launches that have made a comeback in 2015. Several alumni from some of the world’s largest hedge funds are either planning, or have already launched, sizeable hedge funds based in the UK. Ex-Brevan Howard co-founder Chris Rokos’s eponymous firm, for example, is expected to raise upwards of $1bn; and the former head of the Ziff Brothers’ London office, David Fear, launched Thunderbird Partners with $1.5bn. Both firms are based in London. Established firms are also enjoying the improved atmosphere in Europe. Assets at Winton Capital Management have rocketed from $28bn at the end of last year to $31bn as of 31 March this year – an increase of $3bn.
Similarly, the recent activity of European markets has provided hedge fund managers with opportunities to generate returns for investors. Funds globally focusing on Europe delivered 4.01% in Q1 compared to a 2.88% gain for the Preqin All-Strategies Hedge Fund benchmark. At the end of March, the FTSE 100 surpassed 7,000 points for the first time ever and Germany’s DAX index climbed by approximately 20%. Europe-focused equity hedge funds have outperformed significantly, returning 5.11% from January to March 2015. Credit-focused funds have also performed well in Q1, returning 2.61%. In March, however, the European Central Bank (ECB) began attempts to revive the Eurozone’s economy with a €1tn program of quantitative easing, which will drive down bond yields in the region and may stifle further gains by credit-focused hedge funds.
While, in recent years, Europe has been a difficult environment in which to launch new hedge funds, made particularly challenging by the cost and compliance of new regulations and volatile equity markets, the European hedge fund environment appears to be showing signs of life in 2015. Notable mega-launches in the UK could lead the way for new launches in Europe as improving market conditions and the revitalization of the European economy through the ECB’s quantitative easing program show promising signs for those poised to invest in the region.