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Hedge fund liquidations up, launches down in first half 2008

Date: Thursday, September 18, 2008
Author: Hedge Funds Review

In the first half of 2008, 350 funds were liquidated, an increase of 15% over the first half of 2007, according to data from Hedge Fund Research. Over 180 hedge fund liquidations were reported in the quarter of 2008, 10 up on the previous quarter.

At the current rate, a total of 700 funds would close by the year, around 7% of the industry, estimates Hedge Fund Research. This would be an increase of more than 24% over the 2007 total of 563.

The record year for hedge fund liquidations was 2005 when nearly 850 funds closed.

New hedge fund launches slowed in the second quarter, with only 240 funds opening. Fewer than 500 funds launched in the first half of the year. If this slow pace continues, 2008 will have the least number of new launches since 2001.

Hedge Fund Research estimates over 10,200 hedge fund vehicles existed at the end of the first half of 2008. These fund manage over $1.93 trillion in investor capital.

Only 240 new funds were started in second quarter of the year. This compared with 247 fund launches.

In the first half of the year, the hedge fund industry experienced an overall attrition rate of -3.46%. This is likely to approach minus 7.0% for the full year, an increase from the rate of minus 5.95% for 2007.

The attrition rate is the percentage of funds which liquidated during the period over the total number of funds as of the beginning of the year.

Excluding growth in funds of hedge funds, the total number of single-manager hedge funds fell again in the second quarter, the first time the number of these funds has declined in two consequtive quarters. A total of 147 new single-manager funds were launched in the second quarter while 157 were liquidated.

In the last 12 months, the top decile of funds has outperformed the bottom decile by over 75%, the widest spread on record and a trend which is expected to continue, said Hedge Fund Research.

By strategy, equity hedge remained the most active in the second quarter, with 81 funds opening during the period and 89 existing funds shutting down.

In the funds of funds category there was a quarter-over-quarter decrease in new offerings to 93 from 125 in the first quarter and an increase in liquidations from 15 in the first quarter to 23.

Regarding recent performance, funds charging management fees of more than 2% posted higher returns for the 12-month period ending June 2008 than funds charging lower fees, although over longer time frame results are more mixed.

Hedge Fund Research data is based on over 13,000 funds it has tracked historically, including over 7,800 funds reporting to the company.

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