Hedge fund closures still outpace launches

Date: Monday, September 21, 2009
Author: Jeff Benjamin, Investment News.com

The hedge fund industry continues to shrink — though the pace is slowing a bit, according to the latest report from Hedge Fund Research Inc.

During the three-month period ended June 30, the industry saw 182 launches and 292 liquidations, a net decrease of 110 funds.

The number of hedge funds fell to 8,946, according to Hedge Fund Research, which calculated the attrition rate at 3.2% for the second quarter and 4% for the first quarter.

With 668 hedge fund liquidations during the first half, the industry was well off the pace from the record 1,471 liquidations it saw last year.

In addition to getting smaller, the hedge fund industry is also becoming slightly more investor-friendly, at least in terms of fees.

The average performance fee charged by single-manager hedge funds fell for the third consecutive quarter, to 19.18%. In the first quarter of 2008, the average performance fee hit 19.34%.

Average hedge fund management fees were unchanged from the previous quarter, at 1.57%.

The most recent data show the residual fallout from the economic carnage of last fall, according to Kenneth Heinz, president of Hedge Fund Research.

“As hedge fund industry consolidation continues, multiple data points suggest that the impact of a tumultuous 2008 remains both widespread and sustained,” he said. “Performance gains since 2009 have been the strongest since 1999, but investors are making demands for greater transparency and structural improvement, setting the stage for the next period of industry expansion.”

E-mail Jeff Benjamin at jbenjamin@investmentnews.com.