Hedge funds see surge in launches in 2011
Hedge fund launches continued unabated in 2011 at levels unseen in almost five years despite the rampant market volatility, according to Hedge Fund Research.
There were 1,113 launches in 2011 including 270 during the last quarter, just shy of the 1,197 recorded in 2007. The majority of these new hedge funds adopted equity (479) or macro (265) strategies. This is despite equity-focused hedge funds suffering an 8% performance decline, while macro strategies were flat at best throughout 2011.
“Investors and managers are adopting a forward looking sentiment. Fund managers are not launching vehicles based on the performance in 2011 but on what they perceive the opportunities to be down the line,” said Kenneth Heinz, president of Hedge Fund Research.
There was a marginal increase in liquidations in 2011 with 775 managers shutting their doors compared with 743 in 2010. Predictably, equity hedge funds experienced the highest rate of liquidations with 293 closures, the highest since 2008 when 651 went out of business.
Interestingly, liquidations among funds of hedge funds (FoHFs) declined markedly to their pre-crisis levels with 215 closures last year. “There has been a major contraction of FoHFs’ AuM and launches. More investors are going direct to single managers and we have not seen an uptick in launches from FoHFs. The FoHFs which offer their investors better transparency and strategic innovation will be the ones who reap the benefits,” commented Heinz.
The total number of funds rose to 9,523 while assets under management (AuM) rose 3% to $2.02 trillion.
“While some have suggested that increased regulation may deter new fund launches, many hedge funds are launching not only as a result of increasing investor risk tolerance, but also as a result of these regulatory changes to trading activities and risk oversight at financial institutions,” said Heinz.