New Hedge Fund Launches Fall to Levels Not Seen in 15 Years
One needs to go back to the 2008 global financial crisis, when hedge funds suffered their worst showing on record at the time, to see similar levels of new hedge fund launches, according to an industry report from data firm Hedge Fund Research (HFR).
Hedge fund launches totaled 71 in the third quarter of 2022, the lowest level since the fourth quarter of 2008 when just 56 firms launched.
By comparison, 80 hedge fund companies opened for business in the second quarter of 2022, while in the third quarter of 2021, 132 hedge fund firms launched.
Hedge fund firm liquidations totaled 145 in the quarter ended September 30, lower than the 156 company closures in the prior three-month period. Over the trailing 12 months to September, the hedge fund industry recorded 449 launches and 544 shutdowns.
Broadly, hedge funds had a good year – performance wise – in 2022, helping investors to preserve capital as major indexes took part in a prolonged bear market. The HFRI 500 Fund Weighted Composite Index, a global benchmark of single-manager funds, posted a decline of just 2.78% in the year to November, compared with an 18% fall for the S&P 500.
But the uncertain environment has meant less investments in new, smaller funds, thus the decline in launches.
Institutional investors “maintaining significant allocations to (macro and larger hedge funds across various strategies) have benefited from this defensive, conservative positioning. These trends have also contributed to a challenging environment for new and recently launched funds, as overall risk tolerance has declined,” said Kenneth J. Heinz, HFR’s president, in the report.
“With significant uncertainty and wide disparity in economic outlooks into early 2023, it is likely that both launches, and liquidations remain near historic levels as institutions carefully evaluate opportunities and deliberately position portfolios for volatility in 2023,” Heinz added.
As of September 30, 2022, hedge fund industry assets totaled $3.78tn, down from $3.82tn the prior quarter.