New hedge fund launches have jumped to the highest level since Q1 2021 and reached the second highest quarter since Q4 2017 as the HFRI 500 Macro Index surged through global inflation-induced financial market volatility, according to the latest HFR Market Microstructure Report.
New hedge fund launches increased to 185 in Q1 2022, jumping from 113 in Q4 2021, representing the highest launch rate since 189 new funds launched in Q1 of last year, and the second-highest quarter since 190 funds launched in Q4 2017. In the trailing 12 months ending Q1 2022, an estimated 610 total new hedge funds have launched. New Macro hedge fund launches reached 45 in 1Q, topping both Event-Driven and Relative Value Arbitrage, and trailing only Equity Hedge funds, which saw an estimated 78 new funds launch.
The number of hedge fund liquidations increased narrowly from the prior quarter, as an estimated 126 funds closed its doors in Q1 22, up slightly from 117 fund liquidations in 4Q21. In the trailing 12 months ending Q1 22, an estimated 494 funds have liquidated.
The investable HFRI 500 Macro Index has surged +14.1% YTD through May, as generational inflation has contributed to steep equity market declines, rising interest rates and concerns regarding a slowing US economy. After producing a strong +9.9% return in 2021, the HFRI 500 Fund Weighted Composite Index has exhibited strong defensive capital preservation over the volatile start to 2022, topping equity market losses by over 2000 basis points by posting a narrow decline of -1.4% through May.
The performance dispersion of the HFRI FWC expanded over the prior quarter but narrowed over the rolling 12 months, as the top decile of index constituents returned an average of +19.8% in 1Q22, increasing from +10.4% in the prior quarter, while the bottom decile declined by an average of -18.6% in 1Q, representing a top/bottom decile dispersion of 38.4%. Over the trailing four quarters, the top decile of index constituents returned an average of +33.2%, while the bottom decile declined by an average of -22.2%, representing a top/bottom decile dispersion of 55.4 %. While dispersion remains high, this figure trails the 85.1% dispersion produced in calendar year 2020.
Hedge fund fees remained steady to begin 2022, as the average industry-wide management fee was unchanged at an estimated 1.36% in Q1 22, while the average incentive fee decreased narrowly by 4 basis points to 16.03%. Both estimated fees represent the lowest level since HFR began publishing these estimates in 2008. Average management fees for funds launched in Q1 2022 also remained steady from launches in the prior quarter, declining only 1 basis point to 1.36%. Average incentive fees for funds launched in Q1 2022 declined to an estimated 15.6%, down slightly from the average incentive fee of 16.2% from funds launched in Q4 2021.
