Europe 50 (2009)


Originally published in the March 2009 issue

Welcome to the fourth snapshot of the top 50 European hedge fund managers, ranked by assets under management as at 31st January 2009. In the belief that sourcing and publishing data about hedge funds serves an important public function, The Hedge Fund Journal has compiled its industry list, wherever possible sourcing figures directly from the firms themselves.

There is no question that 2008 was a watershed year for hedge funds. A year ago the emerging trend was one of increasing asset share by the marquee names in the hedge fund industry. Now the research shows falling assets under management for many firms and an aggregate decline for the industry. Total assets under management for EUROPE50 firms fell over the year to US$271 billion compared with US$366 billion a year ago.

Even funds that made money are being hit with redemptions as investors scramble to raise cash. The corollary, however, is that some of the best regarded funds, which have been closed for years, are now open again. Among the most prominent to re-open is the global macro master fund run by Brevan Howard, which at firm level has moved into the pole position on AUM of US$25.56 billion, up from third place a year ago.

The unpredictability of many events over the past year – the Lehman implosion, the drying up of faith in credit markets and the Madoff imbroglio – has forced virtually all firms to invest further in risk management and operational infrastructure at a time when performance and management fee income was declining. Costs in this area are unlikely to do anything but increase as investors become more assertive and demanding. The expense of this is likely to drive consolidation among the many hundreds of hedge fund firms that are too small for inclusion in the EUROPE50.

A year ago, Adelphi Capital needed nearly US$2.3 billion to be included in fiftieth position. Even though the firm has seen AUM fall by nearly US$600 million, it moves up to forty-first position as other firms saw even greater asset declines. In the current survey, the amount needed for inclusion fell to just US$1.5 billion. Firms of this reduced size are probably still viable as going concerns, though painful cost cutting would seem to be inevitable. However, it seems unlikely that they have sufficient mass to be of interest to investors as public companies should the appetite for such equity one day come back into vogue.

Despite the shrinkage in size of many firms and of the AUM of the hedge industry as a whole, it is clear absolute return investing is here to stay. Much anecdotal evidence shows that institutional investors across Europe and around the world are continuing to invest in hedge funds. Typically, institutions only began investing in hedge funds earlier this decade and have moved at a moderate pace in a long-term programme of boosting exposure. Hedge funds, in aggregate, performed poorly in 2008 with the HFRI Fund Weighted Composite Index showing an 18.3% decline, but that was substantially better than the main equities funds.

Name firms jockey for top spots
Paradoxically, the EUROPE50 ranking shows how major change goes hand in hand with an underlying continuity. GLG Partners surrendered the top slot as it lost over one-third of its hedge fund assets. But the firm’s steady ascent over the past decade meant it had enough staying power to remain among the top handful of European hedge fund operators. A newcomer to the top five is Winton Capital, the highly respected CTA, which continued to perform strongly for investors, but like Brevan Howard saw redemptions in the second half of the year since the liquidity of the managed futures strategies made it an easy target for investors looking to raise cash.

A source of continuity was Man Investments which again featured in the number two slot. Its AHL strategies earned stellar returns for investors and the firm ended up with decent asset gains during a time when most firms reported asset losses. Barclays Global Investors stayed near the top of the table, rising one slot to third despite a modest fall in AUM. Slipping out of the top five was Lansdowne Partners, which dropped two places to seventh, while BlueCrest Capital rose two slots to sixth while keeping AUM at the same level as a year ago.

Evidence of how Lehman hit some firms particularly hard is provided by France’s Alternative & Derivative Investments (ADI Gestion), which closed five funds with exposure to the failed investment bank. ADI fell to twenty-fifth after being fifteenth in the table a year ago and is now in the process of being integrated with French asset manager OFI Group. A notable departure from the top ten was Marshall Wace, the long/short systematic equities manager, which lost some AUM on performance but lost much more as investors took advantage of its favourable liquidity terms. Investors were forced to behave this way due to some indiscriminate asset raising during the boom and the subsequent need to gate funds when market conditions deteriorated. As many investors have stated recently, poor returns may hurt particular funds but the widespread use of gates could threaten the entire industry.

With a list like this, we are always welcoming new entrants – something that underscores the deep entrepreneurial roots operating in single manager hedge funds. Among them, are Clive Capital, Armajaro Asset, Cazenove Capital, Arrowgrass Capital and veteran asset manager Thames River Capital. Firms like Jabre Capital and Montrica first included last year made good progress and moved up the table.

As with previous Europe 50 lists, THFJ has focused on those firms which can be recognised as distinctly European businesses, usually those where the executive functions and head office are located in Europe. In some cases, the European subsidiaries of larger, global asset management operations can still qualify on the strength of the money being managed out of their European offices. The key criterion in these latter instances is where the assets are being managed from, not where they are located.

Where the executive function is located in Europe, THFJ has, for the sake of convenience, included all the assets managed by that group, regardless of where the portfolio manager is sitting. Where the executive function is outside Europe, it has just counted the assets managed by European-based portfolio management teams. In cases where groups manage both hedge fund and non-hedge assets, THFJ has sought to strip out the non-hedge component of the asset base.

The reader will notice that THFJ has been forced in some cases to simply provide estimates of the money being managed by a firm, and hopes that this will be enough to reflect their relative standing in the rankings. Wherever possible, THFJ has sought to obtain an AUM figure for the end of January this year, but where this has not been disclosed, an estimate has been provided, sometimes compiled from more than one independent source.

There are several significant omissions from last year, notably Toscafund. It had an estimated $6 billion under management and occupied twentieth slot in the table but has now fallen out of the rankings. Another firm that slid below the AUM threshold in hedge fund assets was Henderson Global Investors.

Alongside the assets under management figures, THFJ asked firms to list their top five strategies by assets under management, along with the portfolio managers responsible for them. The names of the founders and/or principals at the firm are also included.

We at Newedge would like to conclude by congratulating all those firms on this list, and wishing them all the best for the year ahead. Although market turbulence and uncertainty continue, it is gratifying to see so many established names with real global presence congregated at the top of this ranking, and we look forwards to seeing some of the newer entrants making their mark in the coming years.

To download the full ranking, please click here