A RECORD number of hedge funds were launched in Europe in the first half of the year, although they raised $1.6 billion (£866 million) less than in the same period last year.

About 170 hedge funds were established, compared with 150 in the same period a year earlier, according to a survey published by EuroHedge, the trade paper.

However, the volume of assets raised slipped to $11.4 billion from $13 billion. Analysts attributed the slide to a reduced number of “blockbuster” hedge fund launches in the period, compared to the first half of 2005.

Last year, traders set up five funds that raised $1 billion or more. These included Gandhara Capital, Marshall Wace’s European TOPS fund and Peloton Capital.

In 2006, many of the larger high-profile funds are due to begin trading only in the second half. These include the SRM fund led by Jon Wood, the star UBS proprietary trader who will set a European record if he hits his $5 billion target. Mr Wood’s fund is due to begin trading in August.

Andrew Metcalfe and Svein Hogset, former traders at Goldman Sachs, aim to raise $1.5 billion for Montrica. Their fund will make its debut next month.

The survey noted that fundraising is not easy for start-ups. The majority of funds set up with modest sums of money while their larger counterparts raise billions of dollars within weeks. According to EuroHedge, Goldman Sachs and Morgan Stanley’s market share in prime brokerage was eroded by rival investment banks muscling in on the lucrative business of loaning money and stocks.

Analysts at Sanford C. Bernstein estimate that Wall Street banks will earn $8 billion in revenue this year from prime brokerage, the loan of money and stocks to hedge funds to trade.

Morgan Stanley and Goldman’s share of sole and shared mandates awarded by new funds slipped to 36 per cent in the first half, from nearly 40 per cent a year ago, EuroHedge said. Both banks still topped the survey’s league tables measuring new mandates to represent hedge funds. Goldman won 38 sole and share mandates for new funds; Morgan Stanley gained 36.

UBS, which has invested heavily in prime brokerage, won 25 new clients. Credit Suisse notched 18 funds. Merrill Lynch, which is expanding in prime brokerage, tripled the number of its mandates to 12 funds. These include Thames River and Gartmore.

The bulk of new hedge funds was focused on European long/short equity, with 41 funds raising $2.2 billion.

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