Hedge fund launches fall in Q2, according to Hedge Fund Research

13 Sep, 2012

Hedge fund launches declined in Q2 with 245 new funds entering the market, down from 304 in Q1, according to data from Hedge Fund Research, the Chicago-based data provider.

Liquidations also fell with 192 funds shuttering their doors in Q2 compared with 232 in Q1. However, the number of liquidations in the first half of 2012 was 14% higher than this time last year.

Performance dispersion between the best and worst performance funds narrowed with the top decile of managers reporting gains of 7% while the bottom decile saw declines of 16.2% creating a top-bottom decile dispersion of 23.2%.

This compares with the 12 months ending Q2 2012 where the top decile gained 18.4% while the bottom decile lost 31.1% creating a dispersion of 49.5%. Nevertheless, this pales in comparison to 2008 and 2009 when the dispersion between the best and worst performing managers exceeded 100%.

The average management fee remained unchanged at 1.57% although newly launched funds charged 1.65%. Incentive fees rose by 4 bps to 18.76% while funds launched in 2012 charged an average of 18.23%, a 15 bps increase over funds launched in 2011. Nearly 40% of all funds charge management fees of between 1.51% and 2% while over 80% charge incentive fees of between 16% and 20%.

“New fund launches through mid-2012 declined from the prior year as a result of three factors – weak performance in Q2, continued low levels of investor risk tolerance and uncertainty surrounding increased reporting requirements and infrastructure costs,” said Ken Heinz, president of Hedge Fund Research.

“Despite total hedge fund industry assets rising to a record level of $2.14 trillion in the first half of 2012, the capital raising environment continues to be challenging, particularly for small to mid-size funds.  Increased certainty about regulation, reporting and marketing, as well as a normalisation of investor risk tolerance, is likely to result in more fund launches and improved capital raising conditions through the second half of the year,” he added.

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