Hedge fund industry liquidations returned to pre-financial crisis levels in the second quarter, according to data released by Hedge Fund Research, a provider of hedge fund industry data.
Led by steady performance, a return of new investor capital and greater clarity around financial reform legislation, hedge fund liquidations fell to 177 in quarter two, bringing the total number of fund closures to 417 in the first six months of 2010.
For the quarter, the fund attrition rate, defined as the number of liquidations as a percentage of the overall number of funds, dropped to below two per cent.
Funds of hedge funds experienced the fewest number of liquidations (54) since quarter one 2008. Since the start of the financial crisis, over 800 funds of hedge funds have liquidated, reducing the number of funds of hedge funds from nearly 2,600 in mid-2008 to approximately 2,100 in quarter two 2010.
New hedge fund launches also declined in quarter two, with only 201 funds launching, the lowest level since quarter two 2009. By strategy, equity hedge and macro experienced the greatest number of new launches.
During the first half of 2010, investors exhibited a clear preference for the industry’s most established firms, allocating nearly all of the USD23bn of new investor capital to firms with greater than USD5bn in assets under management. These firms currently control approximately 60 per cent of all hedge fund industry capital.
Performance dispersion amongst hedge funds declined from record levels with 69 per cent separating the best and worst performing deciles of funds for the 12-month period ending quarter two 2010. The top decile of hedge funds averaged a return of 52.2 per cent during this period, while the bottom decile lost 16.8 per cent. Performance dispersion had reached a peak level of over 130 per cent in the 12-month period ending quarter one 2010.
“Volatility returned to financial markets in quarter two 2010 as investors lowered expectations of the global economic recovery,” says Ken Heinz, president of Hedge Fund Research. “Despite this volatility, fewer funds have liquidated recently as a function of steady performance, improved structural integrity and renewed investor confidence in the hedge fund industry.”
