Australian hedge funds are tiny and their returns have been even smaller

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Australia’s hedge funds are small in number, don’t have a lot of assets under management and don’t pose significant a risk to the financial system.

According to a survey and detailed analysis by the corporate watchdog ASIC, the hedge funds have only a small part of Australia’s $2.407 trillion managed funds.

Single-manager hedge funds at $83.7 billion manage 3.5% of all Australian managed fund assets. Funds of hedge funds represent just 0.5%, or about $12.2 billion.

There are 473 local hedge funds with about half of them managing just $50 million in investments.

Hedge funds are characterised by their use of complex strategies, which may include derivatives, short selling, high-frequency trading and the search for absolute returns

In Australia, hedge fund returns have fallen recently.

In the year to September 2014, the average annual return was 4.2%, lower than the previous year when funds reported 14.4%. The return has been negative twice, in 2008 and 2011, since 2004.

The number of single manager hedge funds and funds of hedge funds:

Assets under management by Australian hedge funds:

“This survey adds to a survey conducted in 2012 which found that there was not any strong evidence that hedge funds pose significant systemic risk,” ASIC says.

The assets of Australian single-manager hedge funds peaked at $86 billion in July 2014 before falling to around $83.7 billion at September 30 last year. Assets under management of hedge funds globally had a similar trend over the same period, rising to $US2.5 trillion.

By asset class, listed equities are the Australian fund managers’ greatest exposures with net investments valued at more than $26.3 billion.

The second largest asset class was cash at $5.7 billion.

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