15 Sep 2010
Hedge fund industry liquidations returned to pre-financial crisis levels in 2Q10, according to data released by Hedge Fund Research. Led by steady performance, a return of new investor capital and greater clarity around financial reform legislation, hedge fund liquidations fell to 177 in 2Q10, bringing the total number of fund closures to 417 in the first six months of 2010. For the quarter, the fund attrition rate, defined as the number of liquidations as a percentage of the overall number of funds, dropped to below two per cent. Funds of Hedge Funds experienced the fewest number of liquidations (54) since 1Q08; since the start of the financial crisis, over 800 FOFs have liquidated, reducing the number of FOFs from nearly 2,600 in mid-2008 to approximately 2,100 as of 2Q10.
New hedge fund launches also declined in 2Q10, with only 201 funds launching, the lowest level since 2Q09; by strategy, equity hedge and macro experienced the greatest number of new launches. During the first half of 2010, investors exhibited a clear preference for the industry’s most established firms, allocating nearly all of the $23 Billion of new investor capital to firms with greater than $5 Billion in assets under management. These firms currently control approximately 60% of all hedge fund industry capital.
Performance dispersion amongst hedge funds declined from record levels with 69% separating the best and worst performing deciles of funds for the 12-month period ending 2Q10. The top decile of hedge funds averaged a return of 52.2% during this period, while the bottom decile lost 16.8%. Performance dispersion had reached a peak level of over 130% in the 12-month period ending 1Q10.
New hedge fund launches also declined in 2Q10, with only 201 funds launching, the lowest level since 2Q09; by strategy, equity hedge and macro experienced the greatest number of new launches. During the first half of 2010, investors exhibited a clear preference for the industry’s most established firms, allocating nearly all of the $23 Billion of new investor capital to firms with greater than $5 Billion in assets under management. These firms currently control approximately 60% of all hedge fund industry capital.
Performance dispersion amongst hedge funds declined from record levels with 69% separating the best and worst performing deciles of funds for the 12-month period ending 2Q10. The top decile of hedge funds averaged a return of 52.2% during this period, while the bottom decile lost 16.8%. Performance dispersion had reached a peak level of over 130% in the 12-month period ending 1Q10.
“Volatility returned to financial markets in 2Q10 as investors lowered expectations of the global economic recovery,” said Ken Heinz, President of Hedge Fund Research. “Despite this volatility, fewer funds have liquidated recently as a function of steady performance, improved structural integrity and renewed investor confidence in the hedge fund industry.”
