Hedge Fund Transparency Increasing, According to Strategic Financial Solutions LLC 2005 Hedge Fund Database Study

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Executive Summary for the 2005 SFS Hedge Fund Database Study.

Strategic Financial Solutions, LLC, (SFS) creator of the world’s leading asset allocation and investment analysis software, the PerTrac Desktop Analytical Platform, is pleased to present the aggregate results of the 2005 SFS Hedge Fund Database Study, an annual report that aims to shed additional light on the hedge fund industry.

One of the most interesting findings of the 2005 Hedge Fund Database Study was that, after combining all 12 databases and integrating the funds identified in the 2004 study, there were nearly 41,000 records across all databases, a jump of more than 16,000 hedge fund entries from last year. While clearly there has been healthy growth in the hedge fund universe since our last report, these numbers indicate great effort and improvement in fund data collection on the part of hedge fund databases. In fact, looking only at funds with start dates between 1990 and 2003 and adjusting for duplicate records, we saw an increase of approximately 870 single manager hedge funds and 630 funds of hedge funds, for a net increase of 1,500 funds. Indeed, it is safe to say that the quantity of hedge fund data available to investors increased dramatically in 2005, although, as we found in prior years’ studies, in order to get more complete hedge fund coverage, it is imperative to subscribe to more than one database.

The study examined the hedge fund listings from twelve of the major hedge fund databases, including Alternative Asset Center, Altvest from InvestorForce, Barclay’s Global HedgeSource, CISDM, Cogenthedge, Eurekahedge Asian Hedge Fund Database, Eurekahedge European Hedge Fund Database, Eurekahedge Fund of Hedge Funds Database, HedgeFund.net from Channel Capital Group, Hedge Fund Research, Lipper/TASS and the MSCI Hedge Fund Indices(SM). The SFS study tagged duplicate funds, CTAs, funds of funds and clone funds using various analytical and statistical methods, and the data was manipulated in a number of ways to yield aggregate information on the hedge fund universe.

Other key findings of the 2005 SFS Hedge Fund Database Study included:

  • There were approximately 12,250 hedge funds and funds of hedge funds in the various hedge fund databases once duplicate funds were removed and the records combined, compared and integrated with the 2004 study results.
  • Nearly 10,500 of these funds reported performance data in 2005, revealing that nearly 2,000 funds ceased reporting to hedge fund databases since the 2004 study.
  • More than 8,100 single manager hedge funds were identified, as well as approximately 4,150 funds of hedge funds.
  • Nearly 3,500 fund managers (general partners) were counted. This compares with nearly 4,300 Registered Investment Advisors who have indicated to the SEC that they or an affiliate manage a private investment fund, demonstrating that while not all hedge funds are yet being captured by hedge fund databases, a significant percentage are represented.
  • Of the single manager hedge funds, more than 6,900 have reported performance in 2005. In addition, there were roughly 3,550 onshore funds and 4,550 offshore funds. Approximately 2,900 onshore funds and 4,000 offshore funds have reported performance in 2005.

Approximately 2,300 of the single manager funds appear to be ‘clones’ to another fund, meaning that they trade pari passu, either as offshore funds, super-accredited (3(c)7) funds or separate currency share classes of a single fund strategy. Single manager funds in the databases account for nearly $1.35 trillion under management, and more than 250 funds have surpassed the $1 billion mark. However, the vast majority of funds continue to manage less than $25 million.

There were approximately 4,150 funds of hedge funds (FOFs) that appeared in the SFS study, and roughly 3,600 had reported performance numbers in 2005. These totals include close to 950 US-domiciled funds and 3,200 offshore domiciled funds, with approximately 825 onshore and 2,775 offshore funds reporting performance in 2005. There appears to be about $700 billion invested into hedge funds through fund of hedge fund vehicles, although, like single manager funds, the majority of FOFs manage less than $25 million.

In addition to the single manager funds and funds of hedge funds included, there are 1,300 Commodity Trading Advisors (CTAs) and managed futures funds within the participant databases. These CTAs and futures funds manage approximately $152 billion in funds and separate accounts.

As with prior years’ studies, we noted significant overlap between the various databases. However, despite overlap and despite growth by every database in the study, it remains true that very few hedge funds and fund of hedge funds report to more than two or three databases, and no fund reports to all twelve databases. In fact, we once again found that a significant number of hedge funds and funds of hedge funds, more than 3,900 in the twelve-database sample, appeared only in a single database.

In fact, general databases (covering all geographic areas and all strategies), averaged more than 550 “exclusive” funds each. Specialty databases, covering only funds of hedge funds, Asian or European hedge funds, each contained an average of nearly 100 “exclusive” funds. This underscores one of the findings from prior SFS hedge fund database studies: serious investors need multiple data sources for their hedge fund screening and analysis.

The number of new funds launches for both single manager hedge funds and funds of hedge funds continues to grow. New fund launches increased in both 2003 and 2004, and 2005 appears to be on track for a record-breaking year as well. In addition, the hedge fund databases are doing an increasingly better job of capturing funds.

Executive summary charts for this study are available by contacting SFS directly.

The SFS database study is part of an ongoing effort to provide high quality aggregate investment information to SFS clients and the general public. Currently, the company plans to replicate this study on an annual basis.

Founded by industry veterans Milt Baehr and Frank Smith in 1996, SFS has offices and representatives in New York, Memphis, Reno, Tokyo, Atlanta, and Nashville. SFS offers a comprehensive suite of software solutions for investment professionals. The flagship product, PerTrac, is the world’s leading asset allocation and investment analysis software. This state-of-the-art tool offers the most complete array of statistical measurements available, combined with portfolio construction, optimization, efficient frontier, peer and style analysis, retirement planning and Monte Carlo simulation capabilities. Once the analysis is complete, users can quickly create and generate a variety of reports, graphs and marketing materials. Investment data is readily available in PerTrac format from a wide variety of outside sources on a wealth of investment vehicles, including hedge funds, CTAs, mutual funds and separately managed accounts. Now an industry standard, PerTrac is used by more than 1,400 clients in 45 countries, including banks, brokerage firms, consultants, plan sponsors, family offices, investment managers and funds of funds. For additional information on the full suite of SFS products, please visit http://www.pertrac.com

Contact:

Meredith Jones

Director of Market Research

Strategic Financial Solutions, LLC

(615) 226-3575

http://www.pertrac.com

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