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Hedge fund launches rise as HFRI tops U.S. equities

Monday, June 22, 2015
Opalesque Industry Update - New hedge fund launches rose to the highest level in three quarters in 1Q15, as strong performance industry - wide drove both total global hedge fund capital and the total number of hedge funds to record levels. Hedge fund launches totaled 264 in 1Q15, the highest level since 2Q14, bringing the total number of hedge funds globally to 10,149 according to the late st HFR Market Microstructure Industry Report, released today by HFR, the established global leader in the indexation, analysis and research of the global hedge fund industry. Total hedge fund capital increased to a record of $2.94 trillion in 1Q15 , while the HFRI Fund Weighted Composite Index and HFRI Equity Hedge Index posted gains of +3.9 and +5.0 percent YTD through May , respectively, topping the performance of both the S&P 500 and DJIA over that time period.

Launches were led by the Equity Hedge strategy with 142 new funds , representing 54 percent of all new funds launched. Industry - wide , Equity Hedge represents 37.7 percent of all hedge funds , making it the largest single strategy area by number of funds , with these managing over $820 billion of investor capital. Hedge fund liquidations also rose , reaching 217 in the quarter , the highest level since 1Q14, though only a small increase over the prior quarter total of 203 .

Performance dispersion between the top and bottom deciles of the HFRI increased in 1Q, with the top performing decile of the HFRI gaining an average of +12.0 percent, while the bottom decile posted a decline of - 7.6 percent. In the trailing 12 months ended 1Q15, the top performing decile of the HFRI was up +35.5 percent while the bottom decile fell by - 20.7 percent, resulting in a decile dispersion of 56.2 percent. This represents an increase over FY 2014 dispersion of 46.9 percent , when the top decile gained +27.4 percent while the bottom decile - 19.5 percent.

Average management fees industry wide in 1Q15 increased by three basis points over the prior quarter to 1.54, while average incentive fees declined by 12 basis points to 17.73 percent. The average management fee for funds launched in 1Q15 was 1.52 percent , representing a decline of 5 basis points over the management fees of 2014 launches. Average management fee s for 1Q15 launches fell to 17.04 percent, representing a decline of 31 basis points from the 17.35 percent average incentive fee of 2014 launches.

“Hedge fund launches accelerated in early 2015 as total hedge fund capital eclipsed a record level and investor risk tolerance continued to normalize, with launches concentrated in Equity Hedge as institutional investors look to diversify their direct equity market beta into more sophisticated alternative beta,” stated Kenneth J. Heinz, President of HFR. “The environment to launch new funds continued to be challenging, with mangers balancing increased demands for performance, transparency, liquidity and complex regulation. While allocating to newly launched emerging managers requires investors to bear incremental, firm - specific risk, investors are compensated for these idiosyncratic risks through innovative strategies , access to capacity and dynamic, early stage fund performance." -->

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