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

(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.

“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.