17 Jun 2011
New hedge fund launches continued to rise in the first quarter of 2011, with both the 1Q and trailing four quarter launch totals reaching their highest levels since 2007, according to data released by HFR, which has just released its latest Market Microstructure hedge fund industry report. Nearly 300 hedge funds (298) launched in 1Q11, a launch rate of 3.3%, as total industry assets exceeded $2 trillion for the first time in history. Liquidations also rose to the highest level in 12 months with 181 funds closing, an attrition rate of nearly 2%t for 1Q. A total of 684 funds liquidated in the last 12 months, resulting in a net increase of 295 total funds in the last year, also the highest since 2007.
The disparity between the best and worst performing hedge funds continued to narrow in 1Q11, with the top decile of all funds gaining an average of +41.3% over the prior 12 months, while the worst performing funds declined an average of -14.0%. This created a top-bottom dispersion of +55.3%, the lowest since 2005 and less than half of the 116% dispersion observed in 2009. The HFRI Fund Weighted Composite Index, HFR’s leading benchmark of global hedge fund industry performance, gained +9.4% in the 12 months ending 1Q11.
Analysis of industry fee structure illustrates an interesting trend of divergence between management and incentive fees. While average management fees have remained relatively constant at 1.58%, recent data suggests a reversal of this trend with funds launched in the last four quarters charging average management fees of 1.67%. Average incentive fees declined for the sixth consecutive quarter, falling to 18.85 percent in 1Q11, a decline of nearly half of one percent since 1Q08. Data from funds launched in last 12 months suggests a continuation of this trend, with these charging an average incentive fee of 17.2%.
The disparity between the best and worst performing hedge funds continued to narrow in 1Q11, with the top decile of all funds gaining an average of +41.3% over the prior 12 months, while the worst performing funds declined an average of -14.0%. This created a top-bottom dispersion of +55.3%, the lowest since 2005 and less than half of the 116% dispersion observed in 2009. The HFRI Fund Weighted Composite Index, HFR’s leading benchmark of global hedge fund industry performance, gained +9.4% in the 12 months ending 1Q11.
Analysis of industry fee structure illustrates an interesting trend of divergence between management and incentive fees. While average management fees have remained relatively constant at 1.58%, recent data suggests a reversal of this trend with funds launched in the last four quarters charging average management fees of 1.67%. Average incentive fees declined for the sixth consecutive quarter, falling to 18.85 percent in 1Q11, a decline of nearly half of one percent since 1Q08. Data from funds launched in last 12 months suggests a continuation of this trend, with these charging an average incentive fee of 17.2%.
“Recent milestones of hedge fund industry growth have been reached as a result of powerful trends across strategies, service providers and structures, which continue to attract investors,” stated Kenneth J. Heinz, President of HFR. “As the industry continues to appeal to a wider constituency of global investors, more funds are launching to suit specialized investor requirements, preferences, risk tolerance and performance expectations.”
