Hedge fund launches fall to three-year low
18 December 2013 Chicago
Image: Shutterstock
New hedge fund launches declined to the lowest level in nearly three years in Q3 2013, while the number of hedge fund liquidations rose to the highest level since Q4 2012, according to the HFR Market Microstructure Industry Report.
The trends in launches and liquidations occurred in Q3 as US regulators proceeded toward approval of the Volcker Rule.
The Volker Rule prohibits companies affiliated with banking entities from taking short positions with certain securities and derivatives.
New fund launches totalled 231 for Q3, declining from 288 in the prior quarter and 275 in Q3 2012, representing the lowest quarterly launch total since the Q4 2010 when 220 funds were launched.
A total of 816 new hedge funds launched in the first three quarters of 2013, narrowly trailing the 824 funds launched in the same period in 2012.
Hedge fund liquidations increased to 222 funds in Q3, an increase on the 190 liquidations of the previous quarter and the 211 liquidations of Q3 2012, representing the highest quarterly total since 238 funds liquidated in Q4 2012.
Continuing the trend of prior quarters, average hedge fund management and incentive fees declined industry wide, with average management fees falling 1 basis point (bps) to 1.53 percent, while incentive fees declined 11 bps, to 18.2 percent.
Similarly, management and incentive fees charged by the funds launched in 2013 were lower than those charged by funds launched in 2012.
Kenneth Heinz, president of HFR, said: “Hedge fund launches declined in the third quarter, as both managers, investors and financial institutions awaited the finalization and regulatory approval of the Volcker Rule, which includes provisions restricting proprietary trading by financial institutions, as well as restricting ownership of hedge fund firms by financial institutions.”
“While the increased uncertainty has likely adversely impacted hedge fund launches in the short-term, over the intermediate to long term, the adoption of the rule is likely to result in increased hedge fund launches, as experienced investment professionals set up new funds utilising their trading acumen.”
The trends in launches and liquidations occurred in Q3 as US regulators proceeded toward approval of the Volcker Rule.
The Volker Rule prohibits companies affiliated with banking entities from taking short positions with certain securities and derivatives.
New fund launches totalled 231 for Q3, declining from 288 in the prior quarter and 275 in Q3 2012, representing the lowest quarterly launch total since the Q4 2010 when 220 funds were launched.
A total of 816 new hedge funds launched in the first three quarters of 2013, narrowly trailing the 824 funds launched in the same period in 2012.
Hedge fund liquidations increased to 222 funds in Q3, an increase on the 190 liquidations of the previous quarter and the 211 liquidations of Q3 2012, representing the highest quarterly total since 238 funds liquidated in Q4 2012.
Continuing the trend of prior quarters, average hedge fund management and incentive fees declined industry wide, with average management fees falling 1 basis point (bps) to 1.53 percent, while incentive fees declined 11 bps, to 18.2 percent.
Similarly, management and incentive fees charged by the funds launched in 2013 were lower than those charged by funds launched in 2012.
Kenneth Heinz, president of HFR, said: “Hedge fund launches declined in the third quarter, as both managers, investors and financial institutions awaited the finalization and regulatory approval of the Volcker Rule, which includes provisions restricting proprietary trading by financial institutions, as well as restricting ownership of hedge fund firms by financial institutions.”
“While the increased uncertainty has likely adversely impacted hedge fund launches in the short-term, over the intermediate to long term, the adoption of the rule is likely to result in increased hedge fund launches, as experienced investment professionals set up new funds utilising their trading acumen.”
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