HFR: Launches and Liquidations Both Rise in Volatile Third Quarter

Dec 18 2015 | 6:57pm ET

Both launches and liquidations of hedge funds increased in the third quarter of 2015, as energy, commodities and equities exhibited high volatility and credit spreads widened, according to the latest data from Hedge Fund Research’s Market Microstructure Report

During the period, there were 257 liquidations and 269 launches. Liquidations were up from 200 in the second quarter and the highest quarterly total since 1Q14, according to the company. Total liquidations in the first three quarters of 2015 stand at 674, up from 661 liquidations during the first three quarters of 2014.

Despite the market turmoil during the third quarter, launches rose by 17 over the 252 launches in 2Q15. There have been a total of 785 launches in the first three quarters of 2015, a year-over-year decline from the 814 launches in the first three quarters of 2014. 

Launches were led by Equity Hedge strategies with 150 launches, although the strategy also led liquidations with 113 funds shutting down in the quarter, noted HFR.

Performance dispersion also increased in 3Q15 as the performance of both the top and bottom deciles declined over the prior quarter. The HFRI Fund Weighted Composite Index fell -4.2%, with the top decile of constituents posting an average gain of +9.3% in the quarter and the bottom decile fell an average of -21.5%, on average. 

HFR’s research further revealed that for the trailing 12 months ending 3Q15, the top decile of the HFRI has posted a gain of +23.4%, while the bottom decile has declined -29%, resulting in a decile dispersion of +52.4%, an increase from the +46.9% dispersion in 2014,

Meanwhile, average hedge fund fees were little changed over the prior quarter during the period, and incentive fees posted a narrow decline. The average industry-wide management fee was 1.51%, although management fees for funds launched within the third quarter averaged 1.68%. Incentive fees of hedge funds fell by 2 bps from the prior quarter, to an average of 17.76%, while such fees for funds launched in the quarter averaged 19.29%. 

“Hedge fund liquidations rose in 3Q15 as investor risk tolerance fell sharply, and energy commodities and equities posted sharp declines, resulting in net capital outflows, wider performance dispersion and meaningful differentiation between hedge funds,” stated Kenneth J. Heinz, president of HFR. 

“Although recent performance declines have narrowed the HFRI to only a narrow gain for 2015 through November, many hedge funds which have been conservatively and defensively positioned have posted strong gains for investors through this period of financial market stress,” he continued.

Established in 1992, HFR produces the HFRI, HFRX and HFRU Indices, the industry’s most widely used benchmarks of global hedge fund performance. HFR calculates over 100 indices of hedge fund performance ranging from industry-aggregate levels down to specific, niche areas of sub-strategy and regional investment focus.  

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