Survey: Most 2011 HF Startups Were Equities Strategies

Feb 22 2012 | 1:06pm ET

Seward & Kissel, which bills itself the law firm that “helped create the first hedge fund” (A.W. Jones & Co. in 1949), has just completed a survey of new U.S. hedge funds.

The Seward & Kissel 2011 New Hedge Fund Study focused on the firm’s own clients and, of those, considered only hedge funds sponsored by new U.S.-based managers entering the market in 2011 (or scheduled to enter in Q1 2012), not new funds sponsored by existing managers. Seward & Kissel did not say how many funds were involved in its survey but estimates its sample represents about 60% of all 2011 hedge fund startups.

Among the survey’s key findings was that half the new U.S. hedge funds created in 2011 are equity or equity-related strategies, one third of which focus on U.S. equities. Multi-strategy funds accounted for 20% of new launches in 2011 and credit strategies for 10%. Another 20% of funds fell into the “miscellaneous” category.

Despite much talk about fees in the wake of the 2008 financial crisis, the study found that the majority of new U.S. hedge funds still charge the traditional 2% management fee and 20% performance fee. All the funds surveyed had high water mark provisions.

Three-quarters of the new funds offered quarterly redemptions while the remainder offered monthly exits.

A full 60% of the funds had a soft lock-up (usually a year) while 30% had no lock-up and the rest had a hard lock-up.

The vast majority of funds in the study had no gates while about 25% had an investor level gate.

You’ll need $1 million to invest in most newly launched U.S. hedge funds, although that could drop as low as $250,000 or soar to $5 million for some funds.

Seward & Kissel found that 45% of responding funds had benefitted from some form of founders’, seed or strategic capital, but the majority did not.

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