NEW hedge funds raised a record $27.8 billion (£16 billion)in Europe last year as commitments from institutions grew at an accelerating rate despite a lacklustre performance by the industry.

Operators such as Peloton Partners — the vehicle set up in June by Ron Beller, a former Goldman Sachs partner — raised a record 330 new funds last year, one third more than the previous year. Mr Beller's bank account was looted by his secretary, Joyti De-Laurey, while he was at Goldman Sachs.

The new funds, which also included one from Fulcrum Asset Management, a hedge fund co-founded by Gavyn Davies, the former Chairman of the BBC, raised a total of 22 per cent more capital last year than in 2004, according to EuroHedge, the authoritative trade magazine for the industry.

The growth in new capital was almost double the 11.5 per cent increase recorded in 2004 even though hedge fund returns trailed those of the main equity markets. Neil Wilson, EuroHedge’s managing editor, said: “Hedge fund performance has been fairly lacklustre over the last couple of years. Hedge funds have similar concerns to private equity funds — that there has been too much growth which could erode overall performance.”

The total value of European hedge funds under management stood at $279 billion at the end of June, after doubling in 2003 and rising by 50 per cent in 2004, according to EuroHedge.

The benchmark Credit Suisse/Tremont Hedge Fund Index rose by 7.67 per cent in 2005, against a 10 per cent increase in the MSCI World Equity Index in the same year.

New funds dedicated to so-called European long/short strategies were by far the most popular representing $7.3 billion, or a quarter, of the money raised. In a “long” transaction, a hedge fund will buy shares in the hope of selling them later for a profit. In a “short” transaction, it will sell shares it does not own in the hope of buying them later for a lower price.

Some $2.4 billion worth of new fixed-income, or bond, funds were raised last year and $2.6 billion was raised for emerging markets.

The clearest picture of the state of the hedge fund industry will emerge next month when EuroHedge releases its latest calculation of the total value of European hedge funds. This will include money raised by existing funds, money redeemed by investors and fluctuations in the value of their assets — as well as the new funds raised.

Stuart Duncan, an analyst for Numis Securities, said: “The new figures give an indication of the growth of alternative assets, of which hedge funds are a major constituent.

“I don’t think redemptions were any higher last year than in previous years.”

FUNDRAISING

New hedge funds raised in 2005 include:

Gandhara Capital: $1.7 billion

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