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HFR: Hedge fund launches declined through mid-2012; 245 in 2Q, down from 304 in 1Q

Thursday, September 13, 2012
Opalesque Industry Update – Hedge fund launches declined through mid-2012, as managers prepare for increased reporting requirements and investor demand for institutional infrastructure continues to increase, according to HFR, the global leader in the indexation, analysis and research of the global hedge fund industry. According to today’s release of the HFR Market Microstructure Industry Report, hedge fund launches totaled 245 in 2Q12, down from 304 in the prior quarter and representing the lowest quarterly launch total since 4Q10.

Hedge fund liquidations also declined from the prior quarter to192 funds, although 1H12 liquidations exceeded the first half of 2011 by 14 percent.

Industry performance declined in 2Q12, with the HFRI Fund Weighted Composite Index falling -2.8 percent for the quarter, though performance improved through August-end, with the Index gaining +1.7 percent in the first two months of the third quarter.

Performance dispersion between the best and worst performing funds also narrowed in 2Q, with the top decile of HFRI constituents reporting an average gain of 7.0 percent, while the bottom decile reported an average decline of -16.2 percent, creating a top-bottom decile dispersion of 23.2 percent. In the trailing 12 months ending 2Q12, the top decile of funds reported an average gain of 18.4 percent while the bottom reported an average decline of -31.1 percent, a dispersion of 49.5 percent. Comparatively, in the volatile years of 2008 and 2009, dispersion between best and worst performing deciles exceeded 100 percent.

With minor fluctuation between strategies, average management fees industry-wide remained unchanged at 1.57 percent, although management fees for hedge funds launched in 2012 rose to 1.65 percent. Similarly, incentive fees rose industry-wide by 4 basis points to 18.76 percent, while incentive fees for funds launched in 2012 rose to 18.23, a 15 basis point increase over fees for funds launched in 2011. Nearly 40 percent of all funds charge management fees between 1.51 and 2.0 percent, while over 80 percent charge incentive fees between 16 and 20 percent.

“New fund launches through mid-2012 declined from the prior year as a result of three factors: weak performance in 2Q12, continued low levels of investor risk tolerance and uncertainty surrounding increased reporting requirements and infrastructure costs,” stated Kenneth J. Heinz, President of HFR. “Despite total hedge fund industry assets rising to a record level of $2.14 trillion in the first half of 2012, the capital raising environment continues to be challenging, particularly for small to mid-size funds. Increased certainty about regulation, reporting and marketing, as well as a normalization of investor risk tolerance, is likely to result in more fund launches and improved capital raising conditions through the second half of the year.”

(press release)

HFR (Hedge Fund Research, Inc.) is the global leader in the alternative investment industry, specializing in the indexation and analysis of hedge funds.


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