Greenwich Associates Report Says Many HFs Lag Behind High-Water Marks

A recent study by Greenwich Associates shows that almost half of managers said one or more of their hedge funds was below the asset peak it must return to before performance fees can be charged, as of the first quarter.

(November 1, 2010) — While the average hedge fund may have finally reached its high-water mark, little more than half of hedge funds are average or above, a new report by Greenwich Associates has revealed.

The 2010 Greenwich Associates/Global Custodian Prime Brokerage Study showed that approximately 45% of hedge fund managers in the US and approximately half of hedge funds in Europe and Asia said one or more of their funds remain below their high-water marks. Most hedge funds are unable to begin charging their 20% of total profits performance fees again until previous losses have been recouped.

The results show that despite a period of strong investment performance, the hedge fund industry is still struggling through the aftermath of the financial crisis.

The figures showed that almost 55% of the US hedge funds participating in the study and 35-40% of hedge funds in Europe and Asia reported performance of 20% or better from the first quarter of 2009 to the first quarter of 2010. Globally, nearly 70% of hedge funds delivered investment returns of 11% or better and nine out of 10 reported positive performance for the 12- month period.

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“The fact that so many funds remain under their high-water marks after a period of historically strong market performance demonstrates how great an impact this crisis had on hedge funds of all sizes and strategies,” John Feng, a Greenwich consultant, said in the report.

While assets from endowments and foundations fell to 12% from 14% in 2009, stakes owned by corporate pension funds decreased to 8% from 9%, and shares held by hedge funds of funds dropped to 23% from 26%, the report said. The only category whose portion of assets rose: public pension funds, which increased to 9% from 8%.

To complete the study, the Connecticut-based research and consulting firm surveyed 1,800 funds.

To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742

As volatility in institutional plan performance has nearly doubled over the past two years, US pension plans, endowments and foundations in the Northern Trust universe have rebounded from the median 4.7% loss three months earlier.

(November 1, 2010) — US pensions, endowments, and foundations in the Northern Trust universe have reported a median 8% gain for the third quarter — a rebound from the median 4.7% loss three months earlier.

“It’s turning out to be a roller-coaster year for institutional plan sponsors, with strong returns in the third quarter following losses in the second quarter and moderate gains in the first quarter,” said William Frieske, senior performance consultant, Northern Trust Investment Risk & Analytical Services, in a statement. “As a result of these quarterly swings, volatility in institutional plan performance has nearly doubled over the past two years.”

The median gain for endowments and foundations, which reported a composite alternatives allocation of close to 40%, came to 7.4%, according to the firm. Corporate and public pension plans, with composite alternatives allocations of less than 10%, posted median gains of 9.1% and 8.8%, respectively. For the 12 months through September 30, corporate pension plans have posted the biggest median gain of 11.5%, followed by public plans, with 10.4%, and endowments and foundations, with 9.6%.

“Over the longer term, corporate plans have been allocating more assets to fixed income and less to equities,” Frieske stated. “In the third quarter, the median corporate plan in our Universe had a 35% allocation to fixed income, up from 27% five years ago. In that same period, the median allocation to domestic equities dropped from 50% to 38%. Plans appear to be paying greater attention to matching their assets and liabilities in to reduce risk as they address the funded status of their pension plans.”

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The Northern Trust Universe represents the performance of about 300 large institutional investment plans, with a combined asset value of approximately $630 billion, which subscribe to Northern Trust performance measurement services.

To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742