Fund launches outweigh closures in Q2 as industry maintains momentum

increasing hedge funds

New hedge fund launches continue to outnumber closures this year, new industry data shows.

The number of new hedge funds launched in the second quarter of 2021 totalled 180, a slight dip from the estimated 189 launches during the previous three-month period, according to Hedge Fund Research data

However, Q2 saw the number of estimated launches outweigh the number of liquidations for the fourth consecutive quarter, following eight consecutive quarters of contraction.

Overall, some 695 new funds have been launched over the course of the previous four quarters - a total which tops calendar year totals for the past three years dating back to 2017, when 735 funds launched, HFR noted.

The mid-2021 stats suggest the industry is maintaining its strong early-year momentum, which saw more hedge funds launched in Q1 than at any other quarter since the end of 2017. 

Meanwhile, hedge funds generated gains of almost 10 per cent in the eight-month period to the end of August, helping to drive total industry assets under management towards a record USD4 trillion.

On the flipside, the number of hedge fund closures dropped to 149 in Q2 this year, the lowest total since 137 funds closed in Q3 last year. Q2’s number is a 50 per cent drop from the 304 liquidations recorded in Q1 2020. 

Liquidations in the trailing four quarters totaled 596, falling below the respective totals of the past 13 calendar years dating back to 2007 when 563 funds were shuttered.

“Trends of strong launches and historically low liquidations accelerated through mid-year, with total industry capital poised to surpass a historic milestone, while the HFRI extended strong H1 gains as investors positioned for higher US interest rates driven by inflation and funding new stimulus measures,” said HFR president Kenneth Heinz.

Heinz noted uncorrelated macro and interest rate-sensitive relative value arbitrage strategies saw strong launch trends, as managers and investors position for higher interest rates and rising inflationary pressures.

Elsewhere, hedge fund management fees fell one basis point to 1.36 per cent between Q1 and Q2, while the average incentive fee declined 3 basis points to end the second quarter at 16.17 per cent. 

For new funds launched in Q2, the estimated average management fee rose to 1.51 per cent, slightly above the industry-wide average of 1.36 per cent, as well as the 1.40 per cent average management fee for funds launched in Q1. 

The average incentive fee for funds launched in Q2 was an estimated 17.0 per cent, slightly below the average incentive fee of 17.1 per cent for funds launched in Q1, and the average incentive fee of 17.25 per cent for funds launched overall in 2020.

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Hugh Leask
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