Overgrown hedge fund numbers facing major pruning
18 March 2016 Chicago
Image: Shutterstock
The number of hedge fund closures in 2015 was at its highest level since the financial crisis, while the number of new launches was at its lowest since 2010, according to a Hedge Fund Research (HFR) Market Microstructure Report.
Last year saw an estimated 979 hedge funds liquidated, up from 864 in 2014, representing the highest annual loss since 2009, when 1,023 funds were liquidated.
New launches for 2015 declined to 968 from 1,040 the year before, recording the lowest total since 2010, when 935 funds were launched.
The HFR report suggests that “liquidations increased to conclude 2015, as volatility and turmoil from the second half of 2015 resulted in falling investor risk tolerance and capital redemptions from underperforming hedge funds”.
In Q4 2015, 305 hedge funds closed their doors, up from the 257 liquidations in the prior quarter, as well as the 203 liquidations from Q4 2014.
Conversely, however, total global hedge fund capital actually grew to $2.9 trillion in Q4 2015, an increase of $22.8 billion over the prior quarter.
HFR data noted that performance-based asset gain offset a small investor net capital outflow of $1.52 billion, the first quarterly net outflow since Q4 2011.
“The hedge fund industry experienced a contraction in number of funds in 2015, despite continued growth in investor capital to a record level, as investor risk aversion increased, resulting in capital redemptions from funds which had underperformed through the recent financial market volatility,” said Kenneth Heinz, president of HFR.
“Investors have become increasingly discriminating in their capital allocations, and the environment for launching a new fund continues to be extremely competitive.”
“As investor tolerance for negative performance deviations falls, and the demand for a competitive fee structures increases, funds which meet these increased institutional investor requirements should attract capital and drive industry performance in 2016.”
Last year saw an estimated 979 hedge funds liquidated, up from 864 in 2014, representing the highest annual loss since 2009, when 1,023 funds were liquidated.
New launches for 2015 declined to 968 from 1,040 the year before, recording the lowest total since 2010, when 935 funds were launched.
The HFR report suggests that “liquidations increased to conclude 2015, as volatility and turmoil from the second half of 2015 resulted in falling investor risk tolerance and capital redemptions from underperforming hedge funds”.
In Q4 2015, 305 hedge funds closed their doors, up from the 257 liquidations in the prior quarter, as well as the 203 liquidations from Q4 2014.
Conversely, however, total global hedge fund capital actually grew to $2.9 trillion in Q4 2015, an increase of $22.8 billion over the prior quarter.
HFR data noted that performance-based asset gain offset a small investor net capital outflow of $1.52 billion, the first quarterly net outflow since Q4 2011.
“The hedge fund industry experienced a contraction in number of funds in 2015, despite continued growth in investor capital to a record level, as investor risk aversion increased, resulting in capital redemptions from funds which had underperformed through the recent financial market volatility,” said Kenneth Heinz, president of HFR.
“Investors have become increasingly discriminating in their capital allocations, and the environment for launching a new fund continues to be extremely competitive.”
“As investor tolerance for negative performance deviations falls, and the demand for a competitive fee structures increases, funds which meet these increased institutional investor requirements should attract capital and drive industry performance in 2016.”
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