New hedge fund launches were steady in the first quarter of 2023 with an estimated 93 new funds making their debut, as managers positioned for opportunities in technology, artificial intelligence, and cryptocurrency, according to the latest HFR Market Microstructure Report.
New hedge fund launches were steady in the first quarter of 2023 with an estimated 93 new funds making their debut, as managers positioned for opportunities in technology, artificial intelligence, and cryptocurrency, according to the latest HFR Market Microstructure Report.
A total of 96 funds launched in the final quarter of last year, up from the historic low of 71 seen in Q3 2022, the lowest number of launches since the depths of the Global Financial Crisis in Q4 2008.
The number of hedge fund liquidations in Q1 2023 declined from Q4 2022, with an estimated 102 funds closing in the first three months of the year, falling from 144 in the previous quarter. In the trailing twelve-month period ending Q1 2023, an estimated 340 funds launched, while 547 funds liquidated.
The HFRI Fund Weighted Composite Index advanced +1.2% YTD through May, led by Equity Hedge and Relative Value strategies. The investable HFRI 500 Equity Hedge Index has led strategy gains to begin 2023, gaining +1.6% YTD through May, driven by exposure to technology, artificial intelligence, and cryptocurrency.
The performance dispersion of the HFRI Fund Weighted Composite Index (FWC) decreased slightly from the prior quarter, as the top decile of index constituents returned an average of +13.3% in Q1 2023, while the bottom decile declined by an average of -10.3%, representing a top/bottom decile dispersion of 23.6%, compared to a top/bottom dispersion of 27.9% in Q4 2023. In the trailing twelve-month period ending Q1 2023, the top decile of FWC constituents returned an average of +19.3%, while the bottom decile declined by an average of -25.1%, representing a top/bottom decile dispersion of 44.4%.
Hedge fund fees increased to begin 2023, driven not only by strong performance and capital inflows, but also sharp increases in interest rates and generational inflation. The average industry-wide management fee increased by 1 basis point (bp) from the prior quarter to an estimated 1.36%, while the average incentive fee increased by 18 bps to 16.17%; both estimated fees rising from their lowest levels since HFR began publishing these estimates in 2008.
For funds launched in Q1 2023, average management fees increased by 3 bps from the prior quarter to an estimated 1.21%. Average incentive fees for funds launched in Q1 2023 were an estimated 18.57%, an increase of 89 basis points from the prior quarter.
