European hedge fund launches fall to six-year low

LONDON (Reuters) - European hedge fund launches in the first half of 2008 fell to their lowest level since the last bear market, a survey showed on Monday, as the credit crisis hit investors' confidence.

The survey by EuroHedge, part of news and data group HedgeFund Intelligence, showed 106 funds were launched in the first half, which is 45 percent down on a year ago and the lowest level since the first half of 2002, when markets were still in a three-year bear market and 84 funds were launched.

However, just over 50 funds closed down in the first half of 2008, indicating the number of funds continues to grow.

In terms of assets, $10.8 billion (5.4 billion pounds) was raised in the first half of 2008, the lowest first-half figure since 2004 when $9.4 billion was raised.

Multi-strategy/mixed arbitrage funds took the largest slice of assets at $4.5 billion, while European long/short equity attracted $2.1 billion.

The $2.6 trillion hedge fund industry has grown rapidly in recent years as investors have allocated to portfolios they thought were able to make money in all market conditions.

However, performance has suffered and investors have become more cautious since the onset of the credit crisis due to higher market volatility, illiquidity in some assets and the need to sell assets as prime brokers tighten credit lines.

"The global credit crunch and extreme turbulence across the financial markets have resulted in a sharp decline in the number of new hedge fund launches and the capital raising climate has become increasingly tough," said Neil Wilson, editorial director of HedgeFund Intelligence, in the note.