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New hedge fund launches accelerate in 2010 as liquidations, incentive fees decline

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New hedge fund launches continued at a steady pace through the end of 2010, as new fund offerings outpaced fund liquidations for the first time since 2007, according to data released today by HFR Hedge Fund Research.

Launches totalled 935 in 2010, topping each of the prior two years and completing the best year for launches since 2007, when nearly 1,200 new hedge funds launched. The fourth quarter saw 220 new funds launched, completing a strong calendar year despite being the second lowest quarterly launch total in the last six quarters.



Hedge fund liquidations totalled 743 in 2010, the fewest since 2007 and nearly half of the record calendar year liquidation total of 1,471 set in 2008. The fourth quarter saw only 158 funds liquidate, the lowest total since 4Q07 and only approximately 20 percent of the record total of 778 funds which liquidated two years earlier in the volatile 4Q08. 


Performance dispersion between the best the worst performing hedge funds narrowed considerably in 2010 from the staggering levels of 2008 and 2009, with only 58 percentage points of performance separating the average of the top and bottom deciles of hedge fund industry returns for the year. The HFRI Fund Weighted Composite Index, a proxy for broad industry returns, returned +10.3 per cent for 2010, the top decile of funds returned an average of +43.2 per cent while the bottom decile declined by 14.6 per cent. Performance dispersion reached a record level of 116 percentage points in 2009 when the top decile gained an average of 100 per cent; in 2008, dispersion was approximately 103 per cent as the bottom decile lost a record 62.4 percent. 



JP Morgan and Goldman Sachs remained the top prime brokers to the hedge fund industry; with 19.7 per cent of funds listing Goldman Sachs as prime broker while JP Morgan is listed as prime broker for 29.3 per cent of all hedge fund assets. Citco Fund Services; Schulte, Roth & Zabel; and Pricewaterhouse Coopers were each top service providers (based on hedge fund industry AUM) for administration, legal and auditing, respectively.


Average hedge fund incentive fees continued to decline, falling to 18.95 per cent industry wide, the lowest level since HFR began tracking aggregate industry fee structure; average management fees were unchanged at 1.58 per cent.



“New hedge fund launches and liquidations in 2010 reflect dynamic shifts in the landscape of the hedge fund industry which will define the next decade of industry growth and evolution,” says Kenneth J Heinz, President of HFR. “The modern hedge fund industry encompasses strategic exposures not only to equity and fixed income markets, but to specialised currency, commodity, inflation protection, energy, and securities issuance trends through accessible, transparent vehicles supported by leading global financial institutions.”

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