Hedge fund launches steady as US eases marketing restrictions, says HFR
Hedge fund launches and liquidations both declined modestly in the second quarter, as US regulators eased restrictions on the marketing of hedge funds.
A total of 288 new hedge funds launched in 2Q13, a slight decline from the 297 funds launched in 1Q13 but representing a year over year increase from the 245 funds launched in 2Q12, according to the latest HFR Market Microstructure Industry Report.
Total hedge fund launches in the trailing four quarters ending Q2 totalled 1144, the highest total since nearly 1,200 funds launched in the trailing four quarters ending Q1 2008.
Hedge fund liquidations in Q2 were also in line with the prior quarter as 190 funds closed, a slight decline from Q1 2013 (196) and 2Q12 (192). Fund liquidations in the trailing 12 months (TTM) totalled 835, dropping from 873 liquidations in 2012 but exceeding the liquidation totals from 2011 and 2010.
The current number of active hedge funds, including fund of hedge funds (FOF), rose to a five-year high of 10,009, approaching the record number of 10,233 established in 2Q 2008. The number of single manager funds rose to a record number of 8,167, while the number of FOF’s continued to decline to 1,842, the lowest level since 2005. Total hedge fund industry capital managed via FOF’s declined to 26.8 per cent in 2Q, the lowest level since 2001. FOF liquidations exceeded FOF launches for the ninth consecutive quarter, dating back to Q1 2011. Total hedge fund capital recently increased to a record USD2.414trn as of mid-year 2013.
Average management and incentive fees industry-wide continued to decline, despite mixed data on the fees charged by recent fund launches. Average management fees for the industry fell to 1.54 per cent, with macro funds charging the highest management fees while relative value arbitrage funds charged the lowest; average incentive fees declined to 18.31 per cent. The average management fee for the vintage of funds launched in 2Q13 was 1.45 per cent, below the industry average but increasing from the prior two quarters. Average incentive fees for Q2 2013 launches were 17.39 per cent, below the industry average and falling from the Q1 level of 17.43 and 2012 level of 17.74 per cent.
Hedge fund performance dispersion in the TTM ending Q2 13 increased over the prior quarter, with the top decile of HFRI constituents gaining an average of 38.12 per cent, up from a gain of 29.82 per cent in the TTM ending Q1 2013. The bottom decile of HFRI constituents posted an average decline of -15.72 per cent TTM ending 2Q, improving over the decline of -17.34 per cent TTM ending 1Q. The dispersion between the top and bottom deciles expanded to 53.84 per cent in the TTM ending 2Q, up from 47.16 per cent in the TTM ending 1Q. The HFRI Fund Weighted Composite Index gained 7.9 per cent in TTM ending Q2 2013.
“The easing of marketing restrictions on hedge funds constitutes an important milestone in the progression of alternative investments becoming more accessible to a wider pool of investors and expanding mainstream awareness of the hedge fund industry,” says Kenneth J Heinz, president of HFR. “While the capital raising environment continues to be challenging, particularly for small to mid-sized funds, recent trends in launches, performance and capital flows validate important growth dynamics, including continued fee sensitivity and preference for lowering portfolio equity market beta. The combination of these and the JOBS Act provisions are likely to contribute to a significant increase in the size, number and scope of hedge fund launches in coming years.”
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