Hedge Fund Growth Rate Shrinks

Sep 15 2011 | 1:01pm ET

The hedge fund industry continued to grow, albeit a little more slowly, in the second quarter, according to a new report.

The year's second three months welcomed 280 new hedge funds to the world, Hedge Fund Research data shows. That's down 18 from the number of hedge funds that launched in the first quarter, while the number of hedge funds closing their doors in the second quarter, 191, was 10 more than in the previous quarter, an attrition rate of 2.07%.

Still, growth is growth, allowing the hedge fund industry to reach a record $2.04 trillion in assets. And despite the second quarter's slowdown, the first half remains the strongest half-year for hedge fund launches in four years.

"The first half of 2011 was a strong environment for new hedge fund launches, with the industry on pace to approach the full-year total of nearly 1,200 launches in 2007," HFR President Kenneth Heinz said. "While lower fees continue to be supportive of this growth trend, the evolution of fund transparency is also a significant factor driving new fund launches."

Indeed, both management and performance fees continue to decline in the second quarter, the latter to an average of 18.81%. But funds launched in the past year are charging the least for performance in six years, an average of 17.56%. Management fees edged down slightly to 1.57%.

The second quarter figures also show that funds of hedge funds continue to shrink as an overall part of the global industry. Only 35 new funds of funds launched in the second quarter, compared to 245 single-manager funds, with 53 funds of funds closed their doors.


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