Q3 hedge fund launches outpace liquidations-report

Date: Thursday, December 10, 2009
Author: Svea Herbst-Bayliss, Reuters

* HFR reports 224 new funds started in Q3, 190 shut down

* Liquidations still high with 858 already shut down in 09

Heartened by improved market conditions, new hedge fund launches picked up again in the third quarter and exceeded the number of liquidations for the first time since the height of the financial crisis.

According to data from Hedge Fund Research, 224 hedge funds opened for business worldwide during the third quarter, outpacing the 190 funds that shut down, the research group said on Wednesday.

The numbers suggest that managers are finding it slightly easier to raise capital again now that pension funds and endowments are returning to alternative assets like hedge funds and real estate funds.

Last month hedge fund assets crossed the $2 trillion level for the first time in a year after investors pulled out roughly $1 trillion of assets in the year that ended in June 2009.

New money plus improved market conditions -- the average hedge fund returned 19 percent through November -- both helped boost industry assets, HFR reported this week.

While the worst may be over for hedge funds after last year's heavy losses, the new numbers do not yet show that business is back to normal in the loosely regulated industry.

The number of new launches -- 554 since January -- is still far below the 1,400 funds set up, on average, every year between 2002 and 2007, HFR said.

Also the rate of liquidations is still very high with 858 having shut down so far this year, marking the second-highest number on record, HFR said.

Last year a record 1,471 funds shut down when the industry posted its worst-ever losses of 19 percent. Some funds suffered losses of 50 percent or more.

This year's liquidations include a number of prominent funds that long rewarded investors with strong returns.

Arthur Samberg, whose Pequot Capital Management ranked among Wall Street's most profitable partnerships, closed his firm in May after regulators reopened an insider trading probe.

Industry stars William von Mueffling and Timothy Barakett also told investors they were shuttering certain portfolios. And James Pallotta shut down his Raptor Global fund in July, telling investors he had plans to reopen later.

Indeed a number of prominent managers are planning to launch new funds or new firms next year.

John Paulson, who earned billions by correctly betting that the housing market would falter, will offer a new gold fund next year. Former Goldman Sachs star Mark Carhart plans to launch a new firm in 2010, and former SAC Capital Advisors manager Larry Foley is teaming up with former Pequot portfolio manager Paul Farrell to launch their Bronson Point Partners on Jan. 1.