HFR: Hedge fund launches on the rise since last quarter

Hedge fund launches totaled 206 in the first quarter, up from 183 the prior quarter, but a decline from the 264 launches in 1Q 2015, according to the latest HFR Market Microstructure Report, released by HFR.

In the trailing 12 months, 910 funds have launched while 1,053 have liquidated. At the end of 1Q16, the total number of active single-manager hedge funds was 8,430, down from the 3Q15 record of 8,566; total capital under management fell to $2.86 trillion over the same period. European-located management firms led in both fund launches and liquidations, accounting for 120 launches and 187 liquidations in 1Q16.

Hedge fund liquidations declined narrowly to begin 2016 after rising sharply to conclude 2015, as investors positioned for macroeconomic volatility in 2Q16, including Brexit and possible interest rate increases by the US Federal Reserve. The number of liquidations dropped to 291 in 1Q16, falling from 305 closures in the prior quarter but still representing a sharp year-over-year increase from the 217 liquidations in 1Q15.

Average management and incentive fees industry-wide were little changed in 1Q16, though fee trends for newly launched funds were mixed. The overall industry-wide average management fee stood at 1.5%, while the average incentive fee fell -0.1% to 17.6%. For the vintage of 1Q16 fund launches, the average management fee was an estimated 1.48%, slightly below the industry average and a decline from the 2015 launch average of 1.6%; average incentive fees for newly launched funds increased to 18.5%, up from the 2015 average of 17.75%.

"Though launches showed an uptick in 1Q16, the environment for new hedge funds continues to be extremely competitive with discriminating investors exhibiting low tolerance for underperformance, resulting in an elevated number of liquidations," stated Kenneth J. Heinz, President of HFR. ......................

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This article was published in Opalesque's New Managers a top-down monthly analysis, news and research publication on the global emerging manager space.