Industry Updates

HFR: Hedge fund launches accelerate (260 in Q3) as managers embrace transparency, Ucits III

Wednesday, December 15, 2010

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Opalesque Industry Update - Liquidations decline by over 30 percent as risk tolerance returns; Incentive fees continue to decline

Strong capital inflows and a return of investor risk tolerance contributed to an increase in new hedge fund launches in the third quarter of 2010, while investors continued to exhibit a clear preference for transparency, liquidity and UCITS III compliance in their allocations, according to data released today by Hedge Fund Research, Inc. (HFR), the leading provider of hedge fund industry data.

New hedge funds launches increased to 260 in 3Q 2010, up from 201 launches in the prior quarter. For the trailing 12 month period, 945 funds have launched, the highest 12 month total since the period ending 2Q 08.

Hedge fund liquidations continued to decline, falling to 168 in the quarter, slightly below both the 177 liquidations of the prior quarter. Through 3Q, 585 funds have liquidated in 2010, representing a decline of 31.8 percent over the same period in 2009. The third quarter of 2010 marks the fifth consecutive quarter in which hedge fund launches have exceeded liquidations.

Equity Hedge, Macro strategies see most launches; UCITS III compliance gains traction

New launches are more consistently conforming to investor preference for liquidity and lower costs. The largest number of new launches occurred in Equity Hedge and Macro strategies, while the fewest occurred in Event Driven and Fund of Hedge Funds. In addition, nearly a quarter of new launches comply with UCITS III guidelines, which incorporate liquidity requirements, restrictions on instruments and leverage, and emphasize the role of the local market regulator.

The average incentive fee fell by 11 basis points to 19.0 percent, the second largest quarterly decline in incentive fees since 2008, while the average management fees remained at 1.58 percent. Both management and incentives fees charged by fund of hedge funds declined for the quarter.

“The trends in new hedge fund launches clearly reflect powerful dynamics currently reshaping the landscape of the industry and redefining the relationship between investors and managers,” said Kenneth J. Heinz, President of Hedge Fund Research Inc. “These trends are likely to continue as the hedge fund industry appeals to an increasingly wider, more global and more institutional investor base.”

(press release)

Hedge Fund Research, Inc. (HFR) is the global leader in the alternative investment industry. Established in 1992, HFR specializes in the areas of indexation and analysis of hedge funds. HFR Database, the most comprehensive resource available for hedge fund investors, includes fund-level detail on historical performance and assets, as well as firm characteristics on both the broadest and most influential hedge fund managers. www.hedgefundresearch.com

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