Hedge Fund Closures Fall By Half, Funds Of Funds Not So Lucky

Jun 16 2009 | 12:39pm ET

The hedge fund attrition rate slowed significantly in the first quarter, but more funds of hedge funds than ever called it quits, according to Hedge Fund Research.

Some 4% of hedge funds, 376, closed their doors during the first three months of the year, HFR said. While that’s less than half of the fourth quarter’s record 778, it still is the second-highest attrition rate ever recorded.

Hedge fund redemptions also slowed during the quarter. Investors pulled $103 billion from the industry, down from $152 billion in the final three months of 2008.

What’s more, more new hedge funds debuted between January and March than since the second quarter of last year. About 150 new funds were launched, according to HFR.

“Although risk aversion began to recede from historical levels in [the first quarter], the structural consolidation which has been ongoing for several quarters continued,” Kenneth Heinz, HFR’s president, said.

If such numbers are encouraging for single-manager funds, the news is downright disastrous for funds of funds: Nearly 200 coughed and died last quarter, a record. The fund of funds attrition rate doubled to 8% from the fourth quarter, no picnic itself.

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