Hedge funds launch at fastest rate since 2007, says study

More new hedge funds launched in the first quarter than any time since 2007, fuelled by a tailwind of industry assets breaching $2trn for the first time, however funds also shut down at the fastest rate in the past 12 months.

This year to March, 298 launched, but liquidations also rose to their highest level in 12 months, with 181 funds closing down – a failure rate of nearly 2%, according to data monitors Hedge Fund Research.

In sum, 684 funds liquidated in the last 12 months, but this still left a net increase of 295 funds over the last year – also the highest since 2007.

The 7285 funds in existence were, however, still below the 7,634 counted at the end of 2007, before the industry’s first, and sharpest 12-month decline to 6,845 funds by the end of 2008.

Funds of funds are still well below their 2007 peak of 2,462. Now, 2,133 fund of funds exist.

The top 10% of hedge funds ranked by performance have made 41.3% over the year to March, while the worst 10% lost 14%. The average fund made 9.4%.

The dispersion between best and worst was 55.3%, the narrowest gap since 2005, and less than half the range of returns encountered in 2009.

The average asset-based fee charged remains fairly constant at 1.58%, but for funds launched over the last four quarters the average was 1.67%.

Average incentive fees in the first quarter were 18.85%, a decline of nearly 0.5% over 12 months. Funds launched in last 12 months have been able to impose an incentive fee of even less – just 17.2% – on their investors.

David Walker

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