Resilience Despite Japan, Mideast Crises

Chidem Kurdas

There were dramatic reversals in hedge fund asset growth over the past five years in response to certain incidents, as documented in the new capital movement index series from fund administrator GlobeOp.  Have recent events – political turmoil in the Middle East, nuclear threat in Japan after the earthquake and tsunami – affected hedge funds?

I asked GlobeOp chief Hans Hufschmid, who’s at the center of a lot of hedge fund activity.  He says he has seen no effect on either asset flows or performance so far.

That’s consistent with the view that the overall story remains one of global growth. Thus Kevin Gardiner, head of investment strategy at Barclays Wealth, the wealth management arm of the bank, says the Japan disaster will probably lead to faster growth in that country, which won’t have trouble financing rebuilding projects because it is the largest international creditor, with plenty of reserves.

His colleague, chief investment officer Aaron Gurwitz, says they recommend that investors keep portfolio risk somewhat above their strategic norm. Translated to hedge funds, that would suggest unimpaired capital inflows.

The hedge fund tale since 2005, as seen in the GlobeOp capital index series, suggests fragility in the face of certain events. Growth is fast until the July 2007 liquidation of the Bear Stearns mortgage funds, significantly slower from then to Lehman Brothers’ bankruptcy in September 2008, at which time it falls off the deep end. Madoff delivers another downward jolt when he reveals his scheme in December 2008.

Recovery starts shakily in late 2009, gets going in 2010.  It is apparently unaffected by the current environment. But most funds are not up to their  pre-crisis asset level. That’s because the inflows are extremely concentrated at the top—a small number of very large funds are receiving most of the money. There is still a residue from the events of 2007-2008; investors try to avoid risk by staying with the most established managers and largest funds.

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One Response to “Resilience Despite Japan, Mideast Crises”

  1. Road Less Traveled Financial Stocks « HedgeFundSmarts Says:

    […] enterprising firm that can take advantage of new synergies. A few months ago GlobeOp introduced an index series on capital movements based on subscription and redemption data for the $167 billion in assets it administers—8% to 10% […]

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