Total net assets of Dutch hedge funds increase again

Statistical News Release
Date 24 August 2012

Dutch hedge funds' total net assets increased from EUR 17.5 billion at end-2011 to EUR 19.8 billion in the second quarter of 2012 (see Figure 1).


 

This rise mainly reflects a net inflow of EUR 1.5 billion that came largely from institutional investors (such as pension funds), who invested notably in Dutch hedge funds that were set up by pension fund managers a few years ago (note 1). These hedge funds – with net assets totalling around EUR 16.6 billion – do not actively pursue an investment strategy, but mainly invest in other hedge funds (known as funds of hedge funds).

Figuur 1 - Dutch hedge funds

The total size of the remaining Dutch hedge funds was around EUR 3.2 billion at the end of the second quarter of 2012. Investors withdrew EUR 0.1 billion from these hedge funds in the first half of 2012. Approximately 50% of these hedge funds – calculated on the basis of the volume of net assets – is a fund of hedge funds. The remaining funds are hedge funds with a long/short strategy (around 35%) or a managed futures strategy (around 15%) (note 2).

 
Dutch hedge funds rank second in the euro area, after Ireland (EUR 76.7 billion). The volume of total net assets of hedge funds in the large euro area countries such as France (EUR 2.7 billion) and Germany (EUR 1.6 billion) is relatively moderate (see Figure 2). Hedge funds are principally established in offshore locations (such as the Cayman Islands, Bermuda etc.), but are generally managed from the United States and the United Kingdom.

Figuur 1 - Hedge funds established in the euro area

Assets under management at hedge funds worldwide amount to USD 2,100 billion (EUR 1,668 billion) in the second quarter of 2012 (note 3). This is a fraction lower than the record level of USD 2,130 billion in the first quarter of 2012. Investors have put some USD 20 billion in hedge funds in 2012 to date. An explanation for the lasting popularity of hedge funds is that investors use these funds to diversify their investment portfolio in an attempt to lower their total portfolio risk. At approximately 9,800, the number of hedge funds is lower than the level recorded before the financial crisis (just over 10,000 hedge funds in 2007)(note 4). Of the 96 hedge funds established in the Netherlands, 30 are funds of hedge funds and 66 are direct hedge funds.

Hedge funds worldwide realised a negative return in the second quarter of 2012 owing to price declines and unrest in the equity markets. The HFRI Fund Weighted Composite Index (measured in US dollars) – a commonly used benchmark – fell by 2.8% quarter-on-quarter in the second quarter of 2012 (Figure 3). Funds of hedge funds also recorded a negative return in the second quarter (-2.3% QoQ). However, Dutch hedge funds realised a positive total return of 4.1% QoQ in this period. The appreciation of the US dollar against the euro (5.7% QoQ) played a significant role, as a significant share of Dutch funds' assets is invested in US hedge funds.

Figuur 3 - Return of hedge funds

Note 1: The sharp increase in the total net assets of Dutch hedge funds (as of the start of 2010) mainly reflects the creation of mutual investment funds by the asset managers of pension funds. Pension funds, in particular, have transferred investments from their own balance sheets, including investments in hedge funds, to these mutual investment funds
Note 2: This distribution is calculated using data from the twenty largest Dutch hedge funds with a joint market share of around 90%. There might therefore be smaller Dutch hedge funds with a different investment strategy.
Note 3: According to data from Hedge Fund Research.
Note 4: According to data from TheCityUK Research.