Hedge fund industry consolidation slows

Hedge fund industry consolidation slows

The pace of hedge fund liquidations continued to decline in the second quarter from the record levels set in 2008, according to data released by Hedge Fund Research. 

The second quarter saw 292 funds liquidate, a 22 per cent decrease from the 376 funds liquidated in 1Q 2009. 

The fund attrition rate for the quarter was 3.22 per cent, compared to 4.05 per cent in 1Q 2009.

After a record-setting 1,471 liquidations in 2008, 1H 2009 closures stand at 668.
 
The number of funds of hedge funds liquidations also declined in 2Q, albeit at a slower pace than single-manager funds. For the quarter, 123 funds of funds closed, compared to nearly 200 in 1Q 2009. This represents an attrition rate of 5.04 pe rcent for funds of funds, nearly double that of single-manager hedge fund closures in 2Q, but lower than the 8.16 per cent rate at which fund of funds liquidated in 1Q 2009.
 
The number of fund launches rose to 182 in 2Q 2009, compared to 148 the previous quarter, suggesting an improving environment for both performance and risk appetite.  However, the 330 new funds launched in the first-half of 2009 represents a 32 per cent decrease in launches from the same period a year ago.

Average incentive fees charged by single-manager funds declined for the third consecutive quarter, down to 19.18 per cent. The average incentive fee stood as high as 19.34 in 1Q 08. Additionally, average management fees for single-manager funds remained at 1.57 per cent in 2Q, while the average fund of funds lowered its management fee by one basis point, down to 1.24 per cent.

J.P. Morgan maintains the largest prime broker by total assets, Goldman Sachs maintained the largest prime broker by number of funds, and Morgan Stanley is the largest prime broker in both Europe and Asia. Barclays, Bank of America, Newedge and Credit Suisse each gained prime brokerage market share in last 12 months. Top administrators and legal advisers saw market share shrink to smaller competitors.

“As hedge fund industry consolidation continues, multiple data points that suggest the impact of a tumultuous 2008 remains both widespread and sustained,” says Kenneth Heinz, president of Hedge Fund Research. “Performance gains for 2009 have been the strongest since 1999, but investors are making demands for greater transparency and structural improvement, setting the stage for the next period of industry expansion.”

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