Number of hedge fund launches in 3Q16 represents lowest since 1Q09

Hedge fund launches declined in the third quarter of 2016, as funds again posted steady gains following the Brexit vote and leading into the surprise US Presidential election results.

New launches totaled 170 in 3Q 2016, down from 200 in the prior quarter and 269 in 3Q15, according to the latest HFR Market Microstructure Report, released in December by Hedge Fund Research. The number of launches in 3Q16 represents lowest since 1Q09 and marks the fourth consecutive quarter of net contraction in the overall number of active funds.

A total of 576 funds have launched in the first three quarters of 2016, a decline of over 200 from the 785 launches over the same period last year.

Hedge fund liquidations also increased in 3Q16, rising to 252 from 239 in the prior quarter, though nearly identical to the number of funds closed in 3Q15, when 257 funds liquidated. Through the first three quarters of 2016, liquidations totaled 782, which is on pace for the highest number of liquidations since the Financial Crisis.

As previously reported by HFR, total hedge fund industry capital increased to a record of $2.979 trillion through 3Q16, surpassing the previous record of $2.969 trillion in 2Q15.

The total number of hedge funds, including fund of hedge funds, declined to 9,925, falling below 10,000 funds for the first time since 2014.

Average industry-wide fees posted narrow declines from the prior quarter, although fee data was mixed on new fund launches. The overall average hedge fund management fee fell to 1.49% as of 3Q, a drop of 1 basis point (bps), while the average incentive fee declined 10 bps to 17.5%. Average management fee for funds launched in 2016 was a similar 1.48%, declining from 1.6% for 2015 launches. The average incentive fee for the vintage of funds launched in 2016 increased to 18.8%, up over 100 bps from 17.75% for 2015 launches.

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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.