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HFR: Hedge fund launches and liquidations declined modestly in second quarter

Thursday, September 12, 2013
Opalesque Industry Update, for New Managers - Hedge fund launches and liquidations both declined modestly in the second quarter, as US regulators eased restrictions on the marketing of hedge funds. A total of 288 new hedge funds launched in 2Q13, a slight decline from the 297 funds launched in 1Q13 but representing a year over year increase from the 245 funds launched in 2Q12, according to the latest HFR Market Microstructure Industry Report, released today by HFR, the established global leader in the indexation, research and analysis of the global hedge fund industry. Total hedge fund launches in the trailing 4 quarters ending 2Q totaled 1144, the highest total since nearly 1200 funds launched in the trailing 4 quarters ending 1Q08.

Hedge fund liquidations in 2Q were also in line with the prior quarter as 190 funds closed, a slight decline from 1Q13 (196) and 2Q12 (192). Fund liquidations in the trailing 12 months (TTM) totaled 835, dropping from 873 liquidations in 2012 but exceeding the liquidation totals from 2011 and 2010.

The current number of active hedge funds, including fund of hedge funds (FOF), rose to a 5-year high of 10,009, approaching the record number of 10,233 established in 2Q 2008. The number of single manager funds rose to a record number of 8,167, while the number of FOF’s continued to decline to 1,842, the lowest level since 2005. Total hedge fund industry capital managed via FOF’s declined to 26.8 percent in 2Q, the lowest level since 2001. FOF liquidations exceeded FOF launches for the 9th consecutive quarter, dating back to 1Q11. Total hedge fund capital recently increased to a record $2.414 trillion as of mid-year 2013.

Average management and incentive fees industry-wide continued to decline, despite mixed data on the fees charged by recent fund launches. Average management fees for the industry fell to 1.54 percent, with Macro funds charging the highest management fees while Relative Value Arbitrage funds charged the lowest; average incentive fees declined to 18.31 percent. The average management fee for the vintage of funds launched in 2Q13 was 1.45 percent, below the industry average but increasing from the prior two quarters. Average incentive fees for 2Q13 launches were 17.39 percent, below the industry average and falling from the 1Q level of 17.43 and 2012 level of 17.74 percent.

Hedge fund performance dispersion in the TTM ending 2Q13 increased over the prior quarter, with the top decile of HFRI constituents gaining an average of 38.12 percent, up from a gain of 29.82 percent in the TTM ending 1Q13. The bottom decile of HFRI constituents posted an average decline of -15.72 percent TTM ending 2Q, improving over the decline of -17.34 percent TTM ending 1Q. The dispersion between the top and bottom deciles expanded to 53.84 percent in the TTM ending 2Q, up from 47.16 percent in the TTM ending 1Q. The HFRI Fund Weighted Composite Index gained 7.9 percent in TTM ending 2Q13.

“The easing of marketing restrictions on hedge funds constitutes an important milestone in the progression of alternative investments becoming more accessible to a wider pool of investors and expanding mainstream awareness of the hedge fund industry,” stated Kenneth J. Heinz, President of HFR. “While the capital raising environment continues to be challenging, particularly for small to mid-sized funds, recent trends in launches, performance and capital flows validate important growth dynamics, including continued fee sensitivity and preference for lowering portfolio equity market beta. The combination of these and the JOBS Act provisions are likely to contribute to a significant increase in the size, number and scope of hedge fund launches in coming years.”

Press release

HFR (Hedge Fund Research, Inc.) www.hedgefundresearch.com

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