HFR: Fund Launches, Liquidations Slowed In Q4

Mar 19 2008 | 12:38pm ET

The pace of both hedge fund launches and liquidations slowed in the fourth quarter of 2007, according to Hedge Fund Research.

The Chicago-based research firm reports that 288 new hedge funds were launched while 154 funds were wound down.

For the year, 1,152 new funds were started while 563 funds liquidated and returned remaining capital to investors. This compares to 1,518 funds launched and 717
funds liquidated in 2006.

Equity hedge funds and fund of hedge funds saw the highest number of new launches, while event driven strategies attracted the fewest number of new entrants. The average launch size of a fund was approximately $30 million, while the average 2007 performance of a liquidated fund was a loss of 5%.

In spite of the turbulent markets, the overall rate of hedge fund attrition slowed to -5.95% in 2007 from -8.28% in 2006 and -11.40% in 2005. However, at 589, the number of net new funds added was the lowest since 2001, when a net 581 new funds entered the market.

“In 2007, investors demonstrated a preference for established managers, as
evidenced by the concentration of assets in the largest funds, with requirements for institutional infrastructure likely constituting a higher hurdle for new fund launches,” said Kenneth Heinz, president of HFR.

“Financial market volatility provided an opportunity for fund managers to clearly differentiate themselves from their competitors, and those that did so successfully attracted investor capital. Fewer launches in previous quarters likely contributed to the smaller number of liquidations as well.”

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