Hedge Fund Liquidations Jump Despite Booming Industry
(March 19, 2014) — Despite the hedge fund industry’s successful streak the last few years, liquidations in the asset class were the highest in the last quarter that they’ve been since 2009.
According to research firm HFR, 904 funds closed in 2013—296 in the fourth quarter—surpassing the 873 funds that closed in 2012.
New hedge fund launches also fell to their lowest level since 2009, the report stated. A total of 1,060 new funds launched last year, compared to 1,108 in 2012 and 1,135 in 2011.
“Despite the modest and encouraging normalization of data on capital inflows by firm size through year end, data on launches and liquidations suggests the capital raising environment for mid-sized to small hedge funds continues to be challenging,” said Kenneth Heinz, HFR’s president. “As the scope and audience for new hedge fund products continues to expand, new funds are faced with the combined challenges of generating performance to attract investors while offering comprehensive, institutional infrastructure, competitive fee terms, and attracting investment professionals necessary to expand the business franchise.”
Total hedge fund assets under management hit $2.93 trillion in February, only $11.9 billion below the record high in 2008, according to an eVestment report.
“As we begin 2014, it looks like the global hedge fund industry is in for another year of strong growth and performance,” wrote Robert Leonard, global head of capital services at Credit Suisse, in a report.
The report, surveying over 500 investors and managers representing $1.6 trillion in single-manager hedge fund allocations, found respondents predicted an average hedge fund growth of 7.1% in 2014. Almost all of the investors said they predict positive returns for the asset class.
Of these optimistic expectations, investors were most positive about long/short equity strategies’ performance. Event driven and global macro strategies followed closely behind.
Credit Suisse also found a surge in investor demand for event driven strategies.
“New issues volumes, a market ripe for idiosyncratic growth, and cash rich balance sheets prime for corporate activity are among the key reasons driving demand for event driven strategies,” Leonard said.
eVestment reported similar findings of heightened investor appetite in event driven funds. According to its report, the funds saw inflows of $10.3 billion in 2014 so far, already exceeding the amount for all of 2013.
The report also found increased flows in macro, managed futures, and credit strategies.
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