New Hedge Fund Launches Picking Up in 2023 – HFR Data

The rate of new hedge fund launches is showing signs of recovery having earlier dropped to its lowest level since the fourth quarter of 2008, but numbers remain near historic lows, according to the latest Hedge Fund Research (HFR) Market Microstructure Report.

There were 96 new hedge funds launched in the fourth quarter of 2022, up from 71 launches in the third quarter – the lowest since the 2008 Global Financial Crisis. At the same time, the number of hedge funds shuttering remained steady between the third and fourth quarters at an estimated 144.

Throughout 2022, about 432 new hedge funds were launched, but they were outweighed by the number of liquidations, which reached 571 annually.

Meanwhile, fees remain a mixed picture. HFR research shows the average industry-wide management fee remained steady at 1.35% during the fourth quarter, though incentive fees dropped by 2bps to 15.99% quarter-on-quarter.

Acknowledging the near-historic low rate of launches, HFR president Kenneth Heinz said the launch environment will likely remain challenging this year as institutions remain wary of financial risks and economic pressures.

Still, Heinz noted that the recent pickup in launches during the fourth quarter, combined with a steady rate of liquidations, suggests allocators may be pivoting towards more opportunistic and defensive portfolio positions as high beta equity and illiquid private equity holdings face a squeeze.

“With a cautious, yet opportunistic, eye towards the risks and reward continuum looking into 2023, institutions are likely to increase their exposures to hedge funds, both established and newly launched, which have demonstrated their robustness through several recent years of dislocations and intense volatility across the range of asset classes,” Heinz said.