Hedge fund launches on the up heading into 2023
New hedge fund launches were on the rise in Q4 2022 as the industry headed into 2023, with 96 funds making their debut, rising from 71, the lowest level since Q4 2008, in the prior quarter, according to the latest HFR Market Microstructure Report.
The number of hedge fund liquidations was steady over the prior quarter, as an estimated 144 funds closed their doors in Q4 2022.
For the full year 2022, an estimated 432 total new hedge funds launched, while an estimated 571 funds liquidated.
Hedge fund fees remained steady and mixed to conclude 2022, with the average industry-wide management fee unchanged from the prior quarter at an estimated 1.35%, while the average incentive fee fell by 2 bps to 15.99%; both estimated fees represent their lowest levels since HFR began publishing these estimates in 2008.
For funds launched in Q4 2022, average management fees declined 17 bps from the prior quarter to an estimated 1.18%; for all funds launched in 2022, the estimated management fee remained steady over the prior year, increasing only 1 basis point to 1.34. Average incentive fees for funds launched in Q4 2022 was an estimated 17.68%, up from the prior quarter estimate of 17.23%; for all funds launched in 2022, the average incentive fee increased to 17.74% from the 2021 estimate of 16.57%.
"The increase in launches and steady level of liquidations indicates institutions are increasing commitment to hedge funds, with institutions looking to pare back high beta equity and illiquid private equity holdings in favour of opportunistic, specialized, defensive portfolio positions,” said Kenneth J Heinz, President of HFR. “Despite the increase, launches for the full year 2022 remain near historical lows, and increased sensitivity to financial risk by institutions as a result of bank failures may contribute to a continuing challenging launch environment to begin 2023, despite strong performance through Q1 2023.
"With a cautious, yet opportunistic, eye towards the risks and reward continuum looking into 2023, institutions are likely to increase their exposures to hedge funds, both established and newly launched, which have demonstrated their robustness through several recent years of dislocations and intense volatility across the range of asset classes.”