Increase in number of Dutch hedge funds
In the first quarter of 2011, the assets managed by hedge funds worldwide amounted to approximately USD 2,550 billion (note 1). Following a sharp decline during the financial crisis, hedge funds' assets in the first quarter of 2011 returned to about pre-crisis level. This rise is mainly due to the continued diversification of investors’ portfolios.
By including hedge funds and other alternative investments in their portfolios, investors aim to reduce the risk in their total investment portfolios, taking into account the lower correlation between returns of hedge funds and traditional investments, such as equities and bonds. The positive returns of hedge funds in 2009 (18.6%) and 2010 (11.0%) also played an important role in the increase in the assets managed (note 2).
The net assets of hedge funds based in the Netherlands increased from EUR 2.9 billion in the first quarter of 2009 to EUR 13.3 billion in the first quarter of 2011 (See Figure 1)(note 3). The number of reporting Dutch hedge funds in this period rose by some 20 to 99 funds. Most Dutch hedge funds have a limited size (approximately 85% of funds have net assets not exceeding EUR 100 million in the first quarter of 2011).
The marked increase in Dutch hedge funds' net assets (as of the start of 2010) is largely the result of the creation of mutual investment funds by institutional investors such as pension funds. Notably pension funds have transferred investments from their own balance sheets, including investments in hedge funds, into these mutual investment funds. Excluding the mutual investment funds investing in hedge funds, the net assets of Dutch hedge funds increased from EUR 2.0 billion in the first quarter of 2009 to EUR 2.8 billion in the first quarter of 2011 (See Figure 2). The net inflow at these hedge funds (excluding mutual investment funds) was negligible over the past two years. Growth in the net assets of hedge funds (excluding mutual investment funds) primarily reflects the inclusion of new funds in the population and positive price performances.
Approximately one third of Dutch hedge funds are fund-of-hedge funds. These funds do not actively pursue an investment strategy of their own but invest in other hedge funds. The fund-of-hedge funds worldwide select hedge funds with the best track records for their participants. The net assets of Dutch fund-of-hedge funds (including the mutual investment funds of institutional investors) amounted to EUR 11.2 billion in the first quarter of 2011. More than 95% of the funds invested in (direct hedge funds and fund-of-hedge funds) are based abroad. The preference for foreign funds could have been prompted by the relatively large fund size, the very large number of available funds and the longer track records of those funds.
The remaining two thirds of Dutch hedge funds are direct hedge funds that pursue an active investment strategy themselves. These funds had joint net assets of EUR 2.1 billion in the first quarter of 2011. The majority of these direct hedge funds are limited in size (on average, EUR 35 million). Based on the size of their investments, the direct hedge funds for the larger part are funds with a long/short strategy. In this strategy, the investor at the same time takes both a long position (e.g. in equities) and a short position (selling of shares not owned) to profit from unexpected price movements.
For more information, you may contact Herman Lutke Schipholt (+ 31 (0)20 524 2712, + 31 (0)6 524 96 900). 020-524 2272, 06-211 23 922)Note 1: HFN Industry Research figure.
Note 2:Return according to the often used Dow Jones Credit Suisse Hedge Fund Index (measured in USD). For the first five months of 2011, the return was 3.1%.
Note 3: These are hedge funds forming part of the investment institution statistics in conformity with the ECB definition of hedge funds