Hedge Fund Launches, Liquidations Down In 2007

Dec 20 2007 | 7:23am ET

Fewer hedge funds are opening, and fewer are closing, as the hedge fund industry is set for multi-year lows in both categories in 2007.

According to Hedge Fund Research, both launches and liquidations are down about 25% from last year.

Through September, 863 new funds were launched, while 408 closed their doors. Last year, 1,518 hedge funds opened, and 717 closed. Should those trends hold, 2007 would see the fewest launches in four years and the lowest number of liquidations in three.

Contrary to the impression made by the large number of high-profile hedge fund failures this year linked to the subprime mortgage debacle, the hedge fund attrition rate is roughly half of what it was last year, standing at just 4.32% for the first three quarters, compared to 8.28% for full-year 2006.

“There are a number of factors that may be contributing to the recent decline in the numbers for fund launches and liquidations,” HFR President Kenneth Heinz said.

“One possible issue is the ongoing consolidation of capital in larger funds. In the third quarter of this year, investors allocated nearly 90% of new capital to funds with greater than $1 billion already under management," he said. "Investor requirements for size and infrastructure may be making it more challenging to launch a new fund.”


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