2016 hedge fund liquidations surpass 2009 levels, new launches decline

Even as the hedge fund industry's total assets exceeded the $3tln milestone last year, hedge fund liquidations increased. So much so that 2016 had the highest number of liquidations since 2008, claims the latest HFR Market Microstructure Report, released by HFR, the hedge fund indexation provider.

For the full year 2016, liquidations totalled 1,057, surpassing the 1,023 liquidations from 2009, though falling well short of the record of 1,471 liquidations from 2008. And the total number of hedge funds, including fund of hedge funds, declined to 9,803.

Q4 was the worst quarter, with more liquidations than other quarters, and less launches.

According to HFR, the number of launches in Q4 represents the lowest quarterly total since 1Q09 and marks the fifth consecutive quarter of net contraction in the overall number of funds.

New launches totalled 729 in 2016, a steep decline from the 968 launches in 2015.

Less funds, making less money. The average hedge fund management fee fell to 1.48% in 4Q, a decline of 1 basis point (bps), while the average incentive fee fell 10 bps to 17.4%.

The average management fee for funds launched in 2016 fell to 1.33%, declining from 1.6% for 2015 launches. The average incentive fee for funds launched in 2016 declined to 17.71%, down 4 bps from 2015 fund launches.

In terms of performance, 2016 was marked by high dispersion. The top HFRI decile averaged a +32.7% return, an increase from +20.3% in 2015, while the bottom decile fell an average of -15.5%, increasing from -25.1% in 2015. Dispersion between the top and bottom HFRI deciles slightly increased to 48.2% in 2016, up from the 45.1% dispersion in 2015. The HFRI Fund Weighted Composite Index gained +5.5% in 2016.

The high level of liquidations and the increased AuM highlight the shifting investor risk tolerance and the steadily increasing concentration of investor capi......................

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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.