Hedge funds on a high as new launches outweigh liquidations


More hedge funds were launched in the first quarter of this year than at any other time since the end of 2017, with the number of new strategy roll-outs outstripping liquidations for the third consecutive quarter, amid further signs the industry is on track for another strong year.

The total number of new hedge fund launches reached an estimated 189 in the first three months of 2021, according to new data published by Hedge Fund Research – up from 175 recorded in Q4 2020. HFR said Q1’s total – the largest amount of new launches since Q4 2017 – was the third consecutive month in which new launches outnumbered liquidations, following an earlier eight consecutive quarters of contraction.

On the flipside, the number of funds being liquidated also rose in Q1 this year, to 159. But HFR noted this is a sharp decline of some 50 per cent from the 304 liquidations in Q1 2020.

Overall, Q1 liquidation rates would suggest that between 600-650 funds are set to fold this year – an annualised rate “well below” the 770 and 739 liquidations recorded in 2020 and 2019, respectively. At the same time, this year’s Q1 launches indicate an annual launch rate well above 2020’s total of 539, when new roll-outs were squeezed by the coronavirus pandemic.

Heading into the second half 2021, hedge funds now appear to be on track to comfortably outperform their 2020 showing, after total global industry assets swelled to a record USD3.8 trillion in Q1. 

HFR’s main performance benchmark, the Fund Weighted Composite Index – which tracks the gains and losses of more than 1400 single-manager hedge funds across all strategies – advanced 9.72 per cent in the first five months of 2021, which compares to a 2020’s full-year return of roughly 12 per cent.

HFR president Kenneth Heinz said: “Strong performance accelerated industry growth to begin 2021, including both new fund launches and a record level of total industry capital as investors positioned for trends toward increasing inflationary pressures and surging trading volumes from individual investors.”

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