There were 873 hedge fund liquidations in 2012, the highest number seen since over 1,000 liquidated in 2009, yet total hedge fund assets increased to a record of $2.25 trillion, according to new HFR figures.

In its latest Market Microstructure Industry Report, HFR said there were 1,108 new hedge fund launches in 2012 - 284 of which took place in the final quarter - compared to a total of 1,113 in 2011.   

According to the report, liquidations in 2012 were concentrated in equity hedge, with over 300 funds liquidating in that strategy. Launches were distributed across macro, relative value and equity hedge strategies, it says.

Index performance dispersion narrowed slightly in 2012, although the firm reported a “substantial improvement” in the performance of the top decile of HFRI constituents - all of which posted an average gain of 32.6 per cent during the year, up from a record low of 19.5 per cent in the previous year.

Meanwhile, funds launched last year charged an average management fee of 1.62 per cent - an increase of 1 basis point on the prior year - while average incentive fees for 2012 launches dropped slightly from 18.08 to 17.74 per cent, the firm said.

Kenneth Heinz, president of HFR, highlighted that even though industry assets rose again in 2012, the capital-raising environment was still a challenge for emerging managers, including small- and mid-sized funds, and newly-launched funds.  

“In order to raise new investor capital, hedge funds must not only demonstrate both superior performance and an innovative strategy, but also increased organisational efficiencies of competitive fees, transparent structures, sophisticated risk management and satisfaction of extensive institutional due diligence processes,” Heinz said.