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That conclusion harmonizes with other market research performed throughout the pandemic by Seward & Kissel, a leading law firm to the private fund industry. The Study is available in full here.

Despite heightened volatility and a sense of stress in the market brought on by the pandemic, certain characteristics of the hedge fund industry remained consistent with past years, the Study suggested. In the continuation of a trend, new hedge funds with equity-based strategies remained in high demand relative to those with non-equity-based strategies.

Equity-based funds accounted for 66% of all funds in the Study. Likewise, a greater proportion of non-equity funds (60%, up from 38% in 2019) than equity-based funds (53%, up from 47%) offered discounted management fees or incentive allocation rates (or both) through founders classes to help attract a base of starting capital.

The findings in the Study are consistent with other recent data collected by Seward & Kissel, such as allocators' appetite for established, well-tested managers early on in the pandemic. However, allocators became more comfortable with the remote diligence process as the pandemic continued, expanding their perspectives and becoming more accepting of a wider pool of managers. Seward & Kissel's recent Alternative Investment Allocator Survey indicated that 80% of investors do invest in managers founded less than two years ago, and of the most sought-after strategies in 2021, equity hedge were most popular among the open-ended strategies.

Other Key Findings Include:

• Seed deals decreased overall in 2020, in another apparent reflection of the pandemic's impact on activity in the first half of the year.
• Average management fees for standard (non-founders) classes increased for funds with equity-based strategies (to 1.51%, from 1.43% in 2019) and decreased for funds with non-equity-based strategies (to 1.52%, from 1.68%).
• Similar to 2019, lock ups or investor-level gates were used by 79% of the equity funds and 70% of the non-equity funds, with 5% of all funds including both.
• Incentive allocation rates in standard classes across all strategies averaged 19% of annual net profits, virtually the same as in 2019.

Seward & Kissel Investment Management Group partner Steve Nadel, the lead author of The Seward & Kissel New Hedge Fund Study, comments:

"The pandemic made 2020 a year unlike any other in the hedge fund industry. But for all the disruption, there was a fair degree of consistency with past years. We saw relatively stable numbers, for instance, in incentive allocation rates, lock-ups, and the share of funds using equity-based strategies."

"The fact that investors could not conduct on-site due diligence during most of 2020 had a dramatic impact on capital raising beyond merely lengthening the sales cycle. As in other industries, the biggest players were at a great advantage, but that effect has eroded and new entrants seem to have gained a foothold."

"For new managers and those in the early stages of launching a fund, The Seward & Kissel New Hedge Fund Study provides practical intelligence on their peers, as well as on the demands being made by investors."

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