Flight to size hurts smaller hedge funds

BOUTIQUE hedge funds are suffering as investors’ cash flows into larger investment houses in a trend dubbed the “flight to size”, a survey published last night revealed.

The top five European hedge funds by size grew their assets under management by 18 per cent to $112bn (£73bn) in the year to mid-2010, according to research compiled by The Hedge Fund Journal in association with Newedge. In contrast, the 10 smallest funds saw their capital shrink by seven per cent to $14bn.

The numbers suggest investors are rushing for the perceived brand safety and improved liquidity of larger hedge funds. Giant asset manager Brevan Howard and Guernsey-based BlueCrest Capital Management were among the beneficiaries, with BlueCrest increasing its assets by a generous 58 per cent to $20.5bn.

Revealing its Europe50 league table, The Hedge Fund Journal wrote: “Much anecdotal evidence suggests the flight to size is having an even more pronounced impact on the hundreds of smaller firms that fall below the threshold for inclusion. What’s more, the tough environment for capital raising and the cost of regulatory changes is likely to crimp the emergence of new funds for some years.”

Despite difficult conditions, a number of fledglings appeared in the top 50 list. Veteran London trader Tony Chedraoui’s event-driven Tyrus Capital vehicle charted at 43rd place with $1.6bn of assets. Finisterre Capital, an emerging markets vehicle, was 49th with $1.2bn.

1. Brevan Howard

2. Man Investments

3. BlackRock

4. BlueCrest Capital Management