Preqin: Hedge Fund Launch Activity Falls Sharply in Asia, Hits Record in North America

Oct 21 2016 | 2:50pm ET

The proportion of Asia-focused and Asian-based hedge funds among new launches dropped sharply in the third quarter, according to new data from Preqin, while the proportion of new launches based in North America hit a new high.

A total of 118 hedge funds were launched during the period, Preqin’s data shows, 76% of which are based in North America, 20% in Europe, and only 3% in Asia-Pacific. The North American tally is a new 12-month high, while the proportion of new Asian managers is only a quarter of the proportion seen in Q3/15. 

In addition, the proportion of new funds focusing on Asia-Pacific has also fallen, dropping from 9% in Q2/16 to just 1% last quarter, the lowest of any region. In contrast, funds with a global focus accounted for 69% of the new funds, up from 58% in Q2, possibly due to the volatility seen in Asia-Pacific markets since mid-2015. 

As for strategy, equity-centric funds continue to dominate, although the proportion of equities-focused funds among new launches fell in Q3/16 for the third consecutive quarter. Meanwhile, event driven strategies accounted for 21% of launch activity in the quarter, up from 12% in Q2, coinciding with strong returns so far this year – Preqin’s All-Event Driven Strategies benchmark has returned 8.27% year-to-date. 

Other key highlights from Preqin’s Q3 Hedge Fund Update:

  • Fund Structures: Single-manager hedge funds accounted for 86% of new funds launched in Q3 2016, up from 71% the previous quarter. Conversely, UCITS and funds of hedge funds represented 7% and 3% of launch activity respectively, less than half the levels seen in Q2. 
  • Searches by Investor Location: Preqin recorded 89 new fund searches through Q3, mainly from Europe- and North America-based investors. Investors based in the Asia-Pacific region accounted for 14% of searches, twice the proportion recorded the previous quarter. 
  • Fund Searches by Strategy: Long/short equity remains the most sought-after strategy in Q3, despite a fall in the proportion of investors searching for the strategy: 43% of fund searches issued in Q3 were for long/short equity, down from 56% in Q2. Long/short credit and CTAs also saw declining search interest, as the proportion of overall search activity including these strategies fell by 19 and 9 percentage points respectively.

“Launch activity through the quarter has been dominated by funds run by North America-based managers, as well as funds with a global focus, while Europe- and Asia-Pacific-based firms have both accounted for a lower proportion of launch activity,” said Amy Bensted, head of hedge fund products for Preqin.

“On the part of Europe, this may in part be due to the uncertainty arising as a result of the unexpected Brexit decision in June, while in Asia, cautious investor sentiment provides challenges for prospective new funds,” she continued. 

Bensted also noted the disconnect between the falling proportion of equity fund launches and the performance in the strategy so far this year. “Although the largest proportions of both active funds and new fund launches continue to be those that pursue an equities strategy, there has been a continued decline in the proportion of fund launches using this strategy over the past three quarters,” she explained. “According to Preqin’s latest survey of hedge fund managers in June 2016, equity strategies [are expected] to be the worst performing through the year. Despite this, equities funds have registered the highest performance of any leading strategy in Q3 2016, which may spur increased fund launches in the coming quarters.”

Founded in 2003, Preqin is a leading source of information for the alternative assets industry, providing data and analysis via online databases, publications and bespoke data requests. More than 40,000 professionals in 90 nations use the company’s products.  

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