Hedge fund liquidations at three year high, according to HFR data

14 Mar, 2013

Hedge fund liquidations reached a three year high in 2012, according to data from Hedge Fund Research.

There were 873 fund closures in 2012, the highest since 2009 when 1,000 funds shuttered their doors, said HFR’s Market Microstructure Industry Report. These closures were particularly concentrated among long/short equity vehicles with 300 liquidations in the strategy.  Nonetheless, overall industry AuM grew to a record $2.25 trillion. There were also 1,108 launches in 2012 – relatively unchanged from the 1,113 recorded launches in 2011.

Index performance dispersion narrowed in 2012 over 2011 although there were significant improvements in performance among the top decile of hedge funds. The top decile of hedge funds posted an average gain of 32.6% last year, an impressive recovery from 2011’s low of 19.5%.  The performance decline of the bottom decile narrowed to - 16% from the 2011 decline of 30.7%, creating a top-bottom decile dispersion of 48.6% in 2012.

Hedge fund performance overall was solid with the HFRI Fund Weighted Composite Index up 6.4% in 2012. Many industry observers acknowledged hedge funds had to pull in a positive performance last year if they were to retain the confidence of their investors, having posted losses of more than 5% in 2011.

The ongoing trend of declining management and performance fees continued. The average management fee dropped 1 basis point to 1.56% while performance fees fell by 17 basis points to 18.54%.  Data showed that new launches in 2012 charged roughly a 1.62% management fee, a marginal 1 basis point increase over 2011’s launches, while performance fees for these launches dropped from 18.08% to 17.74%.

In terms of service providers, Goldman Sachs, J.P. Morgan and Credit Suisse saw an uptick in prime brokerage business.  GlobeOp, despite controversy surrounding its sale to SS&C Technologies, also increased its market share for fund administration, as did Citi Transaction Services.  Law firms Schulte, Roth & Zabel and Seward & Kissel also made strong inroads, while Ernst & Young remains the top choice auditor.

Hedge Fund ResearchlaunchesliquidationsfeesGoldman SachsJ.P. MorganCredit SuisseGlobeOpCitiSeward & KisselSchulte Roth & ZabelErnst & Young