Hedge Fund Launches Beat Liquidations In Q1

Editorial Staff

21 June 2018

More hedge funds got off the launching pad than were liquidated in the first three months of this year, the third quarter in a row of such a trend, according to data from Hedge Fund Research.

Launches and liquidations both fell in the early stages of the year: An estimated 158 funds were started, down from 190 in the final three months of 2017, the lowest quarterly new launch total since 153 funds were started in Q4 2016, the Chicago-based group said.

Fund liquidations also fell, with 145 funds liquidating in Q1 2018 compared to 259 in the same period last year, the lowest total since Q3 2017 and the second lowest total since HFR began tracking liquidations in 2008.

The figures coincided with a 1.4 per cent rise in the HFRI Fund Weighted Composite Index® of returns between the start of this year and May. Index performance continued to be led by the equity hedge strategy, with strong gains in technology, healthcare and energy segments.

The data also showed that management and performance fees started this year the lowest level since HFR started to track them a decade ago. In Q1, management fees declined to another record low while incentive fees rose slightly. Average management fees fell -1 basis point over the prior quarter to 1.43 per cent, while the average incentive fee rose 2 bps to 17.11 per cent.

A period of sometimes lacklustre hedge fund gains have seen investors put pressure on these traditionally high-fee entities to cut what they charge. Traditionally, hedge funds charged a 2 per cent fixed fee and a 20 per cent performance haircut, but today only about 30 per cent of funds are either charging such a level or above.