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16 Feb 2007

Hedge Fund Survey Shows Established Names Have More Chance of Success

The Absolute Return New Funds Survey for 2006, published in the February issue of Absolute Return magazine, shows that new hedge fund launches in the U.S. slowed for the second year in a row. Last year, the 86 largest hedge fund launches raised $31 billion, down from $34 billion raised by 82 funds during 2005 and $40 billion by 81 funds in 2004.

Most of the launches were in the first six months of the year. But after the equity market meltdown last spring and summer hammered hedge funds, and Amaranth Advisors went bust last fall, raising money got harder for new funds.

Only 29 funds raising at least $50 million - the minimum required to be included in the survey - launched during the second half of the year. These funds raised a mere $6.2 billion, or 20% of the total.

For the year, six new funds raised more than $1 billion. The biggest launch of the year, Convexity Capital, set 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 superstar.

The second largest launch in 2006 was Old Lane Management’s Old Lane fund launched in April with $3.7 billion. It finished the year with roughly the same amount. The giant multistrategy fund’s founders include Vikram Pandit, John Havens and Guru Ramakrishnan - a high-profile trio from Morgan Stanley.

A closer look at the alpha-pack points to two ongoing themes: Billion-dollar megalaunches are alive and well - but only for the right pedigree. Seven of the top ten launches were new funds by established players, more evidence that the big, established names will continue to get bigger.

The trend for larger megalaunches in the past few years is likely to continue if institutional investors - pensions and endowments more so than funds of funds - continue to wade into hedge funds.

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