Hedge Fund Launches Fall In Q3, Liquidations Rise

Dec 16 2013 | 10:40am ET

Despite a renewed investor appetite for hedge funds, the fewest in almost three years came to market in the third quarter.

Just 231 hedge funds debuted between July and September, according to Hedge Fund Research, down from 288 in the second quarter. A total of 813 hedge funds have launched this year, meaning that nearly 300 will have to open this quarter if 2013 is to match last year's total of 1,108 launches.

In addition to fewer launches, more hedge funds closed their doors in the third quarter than in either the first or second. Some 222 liquidated, up from 190 in the second quarter. The third quarter's casualty figure was the highest since the fourth quarter of last year.

HFR President Kenneth Heinz suggested that the looming Volcker rule—which was finalized last week—had scared some managers from a third-quarter launch.

"The increased uncertainty has likely adversely impacted hedge fund launches in the short term," he said. Having the rule in place, however, "is likely to result in increased hedge fund launches as experienced investment professionals set up new funds."

Some such would-be managers may also be discouraged by the huge amount of money they'll need to raise to survive: A recent Citigroup report suggests that hedge funds need at least $300 million in assets to cover costs.

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