Hedge Funds Pass Mutual Funds as Source of US Equity Trading Volume

Hedge funds surpassed mutual funds as a source of US equity trading volume last year and now rank second only to traditional asset management shops in those terms, according to the results of Greenwich Associates’ 2008 US Equity Investors study. US institutions stepped up the pace of their domestic equity trading activity last year. The amount of commissions paid by the typical US institution increased to just more than US$26m in 2007-2008 from roughly US$24.7m in 2006-2007. Driving much of this commission growth were hedge funds, which generated nearly 30% of US institutional equity commission payments in the year ending February 2008, up from 24% in the prior year. “Although the second half of 2007 was something of a wild ride, hedge fund performance for the year was relatively strong, and from a US equity trading perspective, hedge funds were extremely active,” says Greenwich Associates consultant John Feng. “When you include the business from the new hedge funds added to our research universe from 2007 to 2008, hedge fund commission payments on U.S. equity trades increased more than 45%.” Meanwhile, mutual fund commission payments declined for at least the third consecutive year, dropping by roughly 19% from 2007 to 2008 after slipping almost 10% the prior year.

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