LONDON, Jan 29 (Reuters) - The hedge fund industry’s profits fell by 30 percent to $21.9 billion in 2014 from $31.2 billion a year ago as poor returns led to lower performance fees, Citigroup said in a report on Thursday.
The drop means a significantly reduced bonus pool of $9.2 billion for the fund managers and analysts running the nearly $3 trillion industry in 2014, as compared with $23.1 billion in 2013, and an increased pressure on smaller hedge fund firms as they rely more on a fixed management fee for survival.
“With AUM (assets under management) at record highs, profits from management fee revenues now account for a larger share of total profits,” said Sandy Kaul, global head of business advisory services at the Wall Street bank.
The findings, based on a survey of nearly 150 hedge fund firms collectively managing $581 billion, showed that a fund needs at least $310 million to break even.
The hedge fund industry is important for the asset management industry’s ecosystem as even though hedge funds manage only 4 percent of the industry’s AUM, they account for about a third of its profitability, according to the report.
Hedge funds, as measured by industry tracker Eurekahedge, gained 4.4 percent in 2014, half the returns of a year ago. (Reporting by Nishant Kumar; Editing by Carolyn Cohn)