HFR: Hedge Fund Launches Rise As Incentive Fees Fall

Jun 16 2017 | 10:45pm ET

New hedge fund launches totaled 189 in the first quarter of 2017, up from 153 in the prior calendar quarter and the first increase since last year’s first quarter as equity markets gained and volatility fell to record lows, according to new data from Hedge Fund Research.

Meanwhile, hedge fund liquidations dipped slightly to 259 during the quarter, down from 275 in the previous quarter, even as total industry assets grew. For the twelve months period ending 1Q17, liquidations totaled 1,025, while 712 new funds were launched and total industry capital rose to a record $3.07 trillion, HFR said in a statement.

Other key highlights from HFR’s latest Market Microstructure Report:

  • The total number of active hedge funds, including fund of hedge funds, dipped to 9,733.
  • Average hedge fund management and incentive fees declined in 1Q17, as the average management fee fell by 1 basis point to 1.47 percent in 1Q, and the average incentive fee fell 10 bps to 17.3 percent. 
  • The average management fee for funds launched in 1Q17 increased to 1.4 percent, up slightly from 1.3 percent for 2016 launches, while the average incentive fee for funds launched in 1Q17 fell to 17.1 percent, down 30 bps from 2016 fund launches.
  • HFR estimates that approximately 30 percent of all hedge funds currently charge management and incentive fees equal to or greater than 2‐and‐20. 
  • HFRI performance dispersion fell slightly in 1Q, as the top decile of hedge funds gained an average of +14.1 percent, while the bottom decile declined -7.0 percent (a dispersion of 21.1 percent). This represents a modest decline from +the 13.7 and -10.1 percent, respectively, for dispersion of 23.8 percent in 4Q16. 
  • Over the trailing 12 month period through the first quarter, the top decile of funds averaged a +36.5 percent return, while the bottom decile fell an average of -13.8 percent, a one-year performance dispersion of 50.3 percent. 

“Hedge fund launches saw an uptick to begin 2017 as total industry capital extended above the $3 trillion milestone, investor risk tolerance increased, and expectations for near‐term financial market volatility declined,” stated Kenneth Heinz, president of HFR, in the statement.

“The recent increase in launches and moderation in liquidations is consistent with the trend of fee structures evolving to meet institutional investor demands and requirements. It is likely these trends will remain central to industry growth for the balance of the year,” he added. 

Established in 1992, HFR is a global leader in specializing in the indexation and analysis of hedge funds. The company produces the HFRI, HFRX and HFRU Indices, industry benchmarks for global hedge fund performance, and calculates over 100 indices ranging from industry-aggregate levels down to specific, niche areas of sub-strategy and regional investment focus.

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