According to a Reuters news report, a study by industry researchers Freeman & Co. said the number of Q1 launches plummeted by almost 40% over the previous three months.
Thirty-three hedge funds and 16 funds of funds launched in the first quarter of 2002, down from 47 hedge funds and 29 funds of funds in the last quarter of 2001, Freeman & Co said.
“Although we expect the popularity of alternative investments to continue, it appears the rush to launch new products may have hit its peak,” Freeman & Co. researchers wrote.
The Q1 2002 anemic performance is in sharp contrast to the nearly five-fold increase in the fourth quarter of 2001. Driving that trend were banks and fund managers trying to horn in on hedge funds’ revenue stream during an otherwise depressed market, Reuters said.
There certainly was ample 2001 revenue as investors poured $21 billion into hedge funds in 2001, three times the 2000 level. With estimated assets of roughly $550 billion, the market is still tiny compared to mutual funds, the Freeman & Co. researchers pointed out. Mutual funds’ managed assets globally are estimated at well over $10 trillion.
Despite the industry shakeout expected by many, Freeman & Co said investors were still piling into hedge funds. It calculated that fresh institutional allocations into hedge funds averaged 3.8% in the first quarter of 2002.
“We continue to see a strong institutional pipeline demand for alternative investments,” Freeman & Co. said. “We believe a large percentage of these allocations will flow into fund of funds, primarily the larger firms.”