Hedge Fund Liquidations Spike In Q3

Dec 18 2008 | 12:11pm ET

A record number of hedge funds liquidated in the third quarter of 2008 with 344 funds closing, far exceeding the previous quarterly record of 267 set two years ago.

A total of 693 funds liquidated in the first three quarters of the year, approximately 6.9% of the overall industry, according to data released today by Hedge Fund Research. This reflects a sharp increase of more than 70% over the first three quarters of 2007, during which 409 funds liquidated.

According to HFR, there were 117 new funds launched in the third quarter, bringing the total for the year to 603, 90 fewer than were liquidated during the same nine month period. The third quarter is the first period in which the industry experienced more liquidations than launches since HFR started tracking this data in 1996.

On an annualized basis, the current year is on pace for more than 920 fund liquidations, easily outpacing the previous calendar year record of 848, which occurred in 2005, and far surpassing last year’s liquidation total of 563.

Quarterly liquidations of single manager funds were slightly higher in percentage terms than liquidations of funds of hedge funds, with an attrition rate of approximately 3.5% of single manager hedge funds versus just over 3% for funds of hedge funds. However, the trend in funds of funds is significant because the fund of funds liquidation total during the first three quarters of 2008 already exceeds the highest annual total for fund of funds closures of 156, also set in 2005.

“The hedge fund industry is currently experiencing a structural consolidation that mirrors broader trends across the entire financial industry,” said Kenneth Heinz, president of HFR. “The combination of a sustained increase in asset price volatility with the decrease in liquidity has widened the differentiation between funds and increased the challenges for both funds and investors.”


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