Volatile financial markets continued to impact the hedge fund industry in the second quarter of the year, contributing to more than 180 hedge fund liquidations, according to Chicago-based
Volatile financial markets continued to impact the hedge fund industry in the second quarter of the year, contributing to more than 180 hedge fund liquidations, according to Chicago-based industry data provider Hedge Fund Research.
The first half of the year saw 350 funds liquidate, an increase of 15 per cent over 303 funds that closed in the same period of 2007. At the current rate, HFR says, a total of 700 funds will close over the full year, an increase of more than 24 per cent over the 2007 total of 563 and equivalent to around 7 per cent of the industry. The record year for hedge fund liquidations was 2005, when nearly 850 funds closed.
New hedge fund launches slowed in the second quarter to 240 and fewer than 500 funds were launched in the first half, a pace that if continued would result in the lowest number of new fund launches since 2001.
HFR estimates that at the end of June a total of some 10,200 hedge fund vehicles managed more than USD1.93trn in investor capital, although other reckonings put the total number of hedge funds and volume of assets as much as 50 per cent higher.
Across the hedge fund industry, 240 new funds were launched in the second quarter and 180 were shut down, compared with 247 launches and 170 liquidations in the first quarter. The attrition rate was 3.46 per cent in the first half, and HFR expects the full-year rate to rise from 5.95 per cent for 2007 to as much as 7.0 per cent.
The total number of single-manager hedge funds fell again in the second quarter, the first time the number of these funds has declined in two consecutive three-month periods. A total of 147 single-manager funds were launched in the second quarter, while 157 were liquidated.
‘The environment of the past 12 months has been characterised by volatility, performance dispersion and asset consolidation toward the largest hedge fund firms,’ says HFR president Kenneth J. Heinz. ‘The top decile of funds has outperformed the bottom decile by more than 75 per cent, the widest spread on record and a trend which is expected to continue.’
Equity hedge remained the most active strategy in the second quarter, with 81 new funds opening and 89 shutting down. The fund of funds sector saw a decline in new offerings from 125 in the first quarter to 93, while liquidations rose from 15 to 23.
HFR notes that funds charging annual management fees exceeding two per cent posted higher returns for the 12 months to the end of June than funds charging lower fees, although over longer time frames results are more mixed.
HFR’s data is based on more than 13,000 funds tracked historically by the firm, including more than 7,800 funds reporting to the firm as part of the HFR Database subscription product. Founded in 1993, HFR Group is a provider of hedge fund data, research, indexation and asset management products and services, including the HFRI and HFRX indices of hedge fund industry performance.
