U.S. Hedge Fund Growth Slows in Q306

February 7, 2007 (PLANSPONSOR.com) - Money raising got tougher for new hedge funds in 2006 after the equity market slowdown at midyear and the later meltdown of Amaranth Advisors, according to a new study.

A news release from Absolute Return magazine said that hedge fund launches in the U.S. slowed for the second year in a row to the 86 largest fund launches raising $31 billion, down from the 2005 performance of 82 funds raising $34 billion and the 2004 showing of 81 funds raising $40 billion, the announcement said.

Also, most of the 2006 launches were in the first six months of the year; Raising money got harder for new funds. Only 29 funds raising at least $50 million – the minimum required to be included in the survey – were kicked off in the July to December period. These funds raised $6.2 billion, or 20% of the total, according to the press release.

During 2006, six new funds raised more than $1 billion with the biggest, Convexity Capital, setting a new record in terms of assets for its $6.3 billion fund launch last February. Convexity was founded by Jack Meyer, the former Harvard University endowment money manager (See  Harvard’s Money Management Dream Team to Resign ).

For the first time in the survey, fixed-income and high-yield funds surpassed equity and multi-strategy hedge funds in raising assets, amassing $9.8 billion among 14 funds, according to the survey. Multistrategy funds came in second with $8.1 billion in 17 funds, down from $11.5 billion in 11 funds in 2005. Distressed funds took in $1.9 billion in three funds, a huge drop from the $9 billion they garnered through the same number of launches in 2005.

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The Greenwich, Connecticut-based Amaranth Advisors LLC, a hedge fund manager, lost about $4.6 billion on bad wagers on natural-gas prices  (See SD County Fund Dumps Adviser in Wake of Hedge Fund Loss ).