Hedge fund liquidations continued apace in the third quarter, but a growing industry was able to shrug it off as both the total number of hedge funds and their total assets hit records.
Hedge funds globally manage $2.2 trillion, spread among 9,764 hedge funds and funds of hedge funds, according to Hedge Fund Research. While that total figure is down from the 2007 record of 10,096 total funds, that can be attributed entirely to the continuing decline of funds of funds. Another 74 funds of funds have closed their doors this year, leaving just 1,897, a level not seen since 2005 and down from the record 2,462 in 2007.
Meanwhile, single-manager hedge funds now number 7,867, topping the previous record set in 2007.
All this as the industry is poised to suffer its most attrition since 2009, when more than 1,000 hedge funds closed their doors. Another 211 liquidated in the third quarter, bringing the total number of hedge fund casualties to 635 on the year, on pace to top last year's 775 and 2010's 743.
But new launches have more than kept pace. The third quarter welcomed 275 new hedge funds into the world, up from 245 in the second quarter. A total of 824 hedge funds have debuted this year.
For the first time this year, the third quarter saw more macro and relative-value arbitrage launches that equity hedge fund launches.
"Recent hedge fund launches reflect the dynamic evolution of the entire hedge fund industry since 2008, with investor preferences shifting away from equity market beta and funds of hedge funds, towards macro and arbitrage strategies which are able to accommodate the demand for transparency, liquidity and cost-sensitivity of institutional investors," HFR President Kenneth Heinz said. "Hedge fund launches continue to be strong into year-end despite continued prospects for regulation and political uncertainty as a result of increased demand from institutional investors facing the challenge of achieving required rates of return through the current environment of low fixed-income yields and high equity market volatility."
Fees continued to inch downward in the third quarter, which the average management fee falling a basis point to 1.56% and the average performance fee 14 bps to 18.62%.