The pace of new hedge fund launches fell dramatically in the first half of 2006 compared to 2005, according Chicago-based Hedge Fund Research, Inc. (HFR), the provider of hedge fund performance data.
From January 1 through June 30, 2006 there were 549 new fund launches and 223 fund liquidations. This compares to 1,211 fund launches in the same period in 2005, and 428 fund liquidations.
In total, there were 8,987 hedge funds in operation as of June 30, a net increase of 326 funds over the 8,661 operating at year-end 2005. For all of 2005, 2,073 new funds were introduced and 848 were liquidated, according to HFR, representing an annual attrition rate of 11.40 percent. Through June 30, the attrition rate for 2006 is 2.58 percent.
'2005 was by far the best year on record for new fund launches, so it's not surprising that the pace has slowed,' said Joshua T. Rosenberg, president of Hedge Fund Research. 'However, the hedge fund industry remains extremely dynamic, and we continue to see new assets and funds entering the market.'
The pace of new fund creation so far this year is consistent with that seen in 2002 (1,087 new funds; 162 liquidations) and 2003 (1,094 new funds; 176 liquidations) according to HFR. In 2004, there were 1,435 new funds launched and 296 liquidations.