Hedge Fund Launches, Liquidations Steady Prior To End Of Advertising Ban

Sep 13 2013 | 10:55am ET

Hedge fund launches and liquidations held steady in the second quarter, with the former continuing to outpace the latter by a considerable margin.

The three months saw 288 hedge funds debut, down from 297 funds in the first quarter but up from 245 funds launched in the year-earlier period, Hedge Fund Research reports. Liquidations fell to 190, from 196 in the first quarter and 192 in the second quarter of 2012.

Those figures are likely to improve in the coming quarters and years, according to HFR President Kenneth Heinz, citing the Securities and Exchange Commission's move in July to lift the ban on hedge fund advertising.

"While the capital raising environment continues to be challenging, particularly for small to mid-sized funds, recent trends in launches, performance and capital flows validate important growth dynamics, including continued fee sensitivity and preference for lowering portfolio equity market beta," he said. "The combination of these and the JOBS Act provisions are likely to contribute to a significant increase in the size, number and scope of hedge fund launches in coming years."

Over the past 12 months, 1,144 hedge funds were launched, the best figure since the 12 months ending March 2008, when almost 1,200 got their start. The number of liquidations over that period declined from the year-earlier period, from 873 to 835, but remains higher than the totals from the two years prior.

A net gain of 98 hedge funds in the quarter pushed the total number of active hedge funds to a five-year high or 10,009, just over 200 shy of the all-time high set in 2008. Single-manager hedge funds are at a record 8,167, while the number of funds of hedge funds dropped to an eight-year low of 1,842. Fund of fund liquidations exceeded launches for the ninth-straight quarter, and their share of total industry assets fell to a 12-year low, even as total hedge fund assets reached a record $2.414 billion.

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