Hedge Fund Launches Return To Pre-Crisis Levels In 2011

Mar 13 2012 | 10:25am ET

Hedge fund launches in 2011 totaled 1,113, the highest calendar year total since 1,197 funds launched in 2007, reports Hedge Fund Research.

Fund liquidations were up slightly for the year at 775 compared to 743 in 2010. Those figures include 270 launches and 190 liquidations in the fourth quarter.

The total number of funds rose to 9,523 in 2011, while total hedge fund industry capital rose by 3% to $2.02 trillion.

In terms of strategy, 479 of the funds launched in 2011 were equity hedge (the highest total since 2006) and 265 were macro (the highest total since HFR began keeping track in 1996).

Equity hedge funds also recorded the highest number of liquidations, with 293 such vehicles shuttering operations in 2011. That’s the highest figure since 2008 when 651 equity hedge funds liquidated.

The fund of hedge funds sector saw liquidations decline to pre-financial crisis levels in 2011, with 215 funds of funds closing.

Geographically speaking, more funds were launched in the United States than in Europe, and liquidations were higher in Europe.

The HFRI Fund Weighted Composite Index fell 5.26% in 2011. Within that measure, the worst-performing decile declined 30.7% while the best-performing decile gained 19.5%, implying a top-bottom dispersion of just over 50%, down from almost 58% in 2010 and over 100% in 2008 and 2009.

Last year also saw the lowest average performance for the top decile since HFR began tracking this metric in 2000—the next lowest performance for the top decile was a gain of 39.2% in 2002.

Management fees in Q4 2011 remain unchanged from the previous quarter at 1.57%, on average, and were down 1 basis point for the year. Incentive fees continued their decline, falling to 18.71% in the fourth quarter—a decline of 1 basis point from Q3 2011 and 24 bps from year end 2010.

“Despite performance volatility and macroeconomic uncertainty in the second half of the year, investors maintained a strong commitment to hedge funds, and fund managers expanded the scope and breadth of strategies offered, making 2011 the strongest year for new launches since the global financial crisis,” said Kenneth J. Heinz, president of HFR.

“While some have suggested that increased regulation may deter new fund launches, many hedge funds are launching not only as a result of increasing investor risk tolerance, but also as a result of these regulatory changes to trading activities and risk oversight at financial institutions. The hedge fund industry has and will continue to expand and innovate to offer more sophisticated and transparent strategies to meet the requirements of institutional investors.”


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