The first hint of the growing subprime calamity came with a series of hedge fund blow-ups this summer. Given the exponential growth of the subprime debacle and credit crunch you might expect that there would be a growing list of hedge fund liquidations but that has not been the case.
Actually the number of hedge fund liquidations, as well as launches, has dropped significantly in 2007. Hedge Fund Research (HFR) reports that hedge fund launches and liquidations have declined approximately 25% in the first three quarters of 2007. It is the second consecutive year of such declines. HFR notes that 863 new hedge funds launched in the first three quarters of 2007 and 408 hedge funds liquidated. That is well below the pace of 2005 when a record 2,073 hedge funds launched and 848 funds liquidated.
Kenneth Heinz, president of HFR, attributed the drop in part to industry consolidation. “In the third quarter of this year investors allocated nearly 90% of new capital to funds with greater than $1 billion already under management. Investor requirements for size and infrastructure may be making it more challenging to launch a new fund,” Heinz says.
Not only has there been less turnover in hedge funds, but 2007 turned out to be a good year. Hennessee Group LLC, an advisor to hedge fund advisors, reported that their Hedge Fund Index grew 11.64% in 2007. That is more than three times the growth of the S&P 500 (3.56%) and nearly double the Dow Jones Industrial Average (6.42%). Hennessee’s best performing indexes were the Latin America Index, 23.40%; the International Index, 20.02% and its Technology Index, 19.98%. And it wasn’t just hedge funds that performed well. Managed futures programs picked up steam as the Barclay CTA Index estimates a return of 1.13% in December putting the index at 7.46% for the year. That would be the strongest performance for the index since 2003. The recovery in managed futures can be attributed in part to the return of equity market volatility.
Noorpuri moves on
Maruf H. Khan Noorpuri, a former principal at Ansbacher Investment Management, has launched a new investment firm, Noorpur Global along with two partners. Khan Noorpuri left Ansbacher in December after five years with the firm. Changes he initiated in the Ansbacher program in 2003 significantly altered the program’s risk profile. While the returns remained similar the annualized standard deviation over the last five years was 4.5% as opposed to 27.80% from the seven years previous. Khan Noorpuri is being joined by Robert Deutsch, former head of equity derivatives at Nomura and CIBC, and Eric Kugler, who also has broad trading experience.