US Hedge Fund Burn Rate Slowed in 2007

Tom Burroughes

27 March 2008

US hedge funds suffered a torrid year in 2007 as the credit crisis hit financial markets but the number of hedge fund blowups was less than in the supposedly more benign market conditions of 2006, according to data from Absolute Return magazine. At least 49 US hedge funds, with a total of $18.6 billion in assets, closed their doors in 2007. However, this contrasts with 83 hedge funds with more than $35 billion that closed down in the previous year. However, 2008 has so far been difficult for hedge funds. Funds managing $6.66 billion of assets have gone out of business, including Drake Management, Peloton Partners and Sailfish Capital Partners. If that rate continues, more than $27 billion worth of hedge funds will close their door this year, the magazine said. The largest hedge fund deaths last year were the collapse of Sowood Capital Management, which managed some $3 billion and the closures of Citigroup’s $2.5 billion Tribeca Global Investments and UBS’s $1.5 billion Dillon Read Capital Management. More than half of the top 10 hedge fund extinctions last year went under due to losses in leveraged credit positions. Meanwhile, in the UK, the London-based hedge fund firm Pentagon Capital said it is to shut its funds, as tough credit conditions continue to hurt the hedge fund industry. The firm, run by Lewis Chester and Jafar Omid and which manages £1.1 billion ($2.2 billion) in assets, told investors of the planned closures in a letter dated 24 March.