The number of hedge fund launches and liquidations declined modestly during
the second quarter of 2013, but rose year-on-year, as US regulators eased
restrictions on the marketing of hedge funds.

According to the latest HFR Market Microstructure Industry Report, 288 hedge funds launched in this year's second quarter, down
slightly from the 297 established in Q1 but up from 245 a year ago. 

“The easing of marketing restrictions on hedge funds
constitutes an important milestone in the progression of alternative
investments becoming more accessible to a wider pool of investors and expanding
mainstream awareness of the hedge fund industry,” said Kenneth Heinz, president
of Hedge Fund Research.

“While the capital raising environment continues to be
challenging, particularly for small- to mid-sized funds, recent trends in
launches, performance and capital flows validate important growth dynamics,
including continued fee sensitivity and preference for lowering portfolio
equity market beta. The combination of these and the JOBS Act provisions are
likely to contribute to a significant increase in the size, number and scope of
hedge fund launches in coming years,” Heinz said.

Abolishing the 80-year-old ban on hedge fund advertising was required under the 2012
Jumpstart Our Business Startups Act (JOBS Act), established to help startups
and small business with regard to financing regulations. While many welcome the
move, critics argue that lifting the ban will expose small and/or inexperienced
investors to fraud as a result of loosened investment protections. In response,
the SEC has adopted rules that disqualify felons and other “bad actors” from
participating in certain securities offerings as required by the Dodd-Frank Act.

In other report findings, the number of hedge fund launches in the four quarters
ending Q2 2013 came to 1,144 - the highest total since the 1,200 logged in
the trailing four months ending Q1 2008. Meanwhile, there were 190 liquidations in this year’s second
quarter, compared with 196 and 192 in Q1 2013 and Q2 2012 respectively.

The number of “active” hedge funds, including fund of hedge
funds, rose to a five-year high of 10,009 and is close to the record number of
10,233 set up in 2Q 2008, HFR said. Likewise, the number of single manager
funds rose to a record number of 8,167, although the number of FoFs themselves dropped to
1,842 - the lowest level since 2005.

Average management and incentive fees, meanwhile,
fell to 1.54 and 18.31 per cent respectively. This is despite mixed data on the
fees charged by recent fund launches, HFR noted.

HFR is a global firm which looks at over 100 indices of hedge fund
performance, spanning  industry-aggregate levels to niche areas of
sub-strategy and regional investment focus.