Weak Markets Yield Strong Results for Hedge Funds

March 7, 2002 (PLANSPONSOR.com) - Soft markets provided fertile ground for hedge fund growth in 2001, according to the Annual Hennessee Hedge Fund Manager Survey.

Industry wide, hedge fund assets enjoyed a 38% rate of growth – some $144 billion – last year, and now total $563 billion, according to the report.

Hedge funds beat out the still struggling broader equity markets during 2001 with the Hennessee Hedge Fund Index turning in a 3.98% increase, net of fees.

On an annualized basis, the index had an 18% return since 1987 compared to 13.6% for the S&P 500 Index, according to a news release from the Hennessee Hedge Fund Advisory Group, which publishes the survey.

The latest Hennessee report also showed that:

  • Individuals remained the largest source of capital for hedge funds, contributing 48% or $270 billion of total assets. Almost 40% of hedge fund managers said high net worth individuals and family offers were the fastest growing capital source. Fund-of-funds were the second largest source of capital, contributing 20% of assets.
  • One industry tactic for coping with the bear market was to hold a large amount of cash and to minimize market exposure. The average fund had a 49% net market exposure in 2001.
  • The use of margin in 2001 declined to its lowest level since the survey began in 1994 — the average long exposure decreased 8% to 83%.

The 2002 Survey includes 766 hedge funds and over $141 billion in assets, equating to 25% of the assets in the hedge fund industry. The median hedge fund size in this year’s survey was approximately $94 million.