Hedge fund launches and liquidations drop

Hedge fund liquidations dropped to pre-financial crisis levels in the second quarter of 2010 although new launches also declined, according to new data.

Figures released by Hedge Fund Research showed just 177 single manager funds closed in the second quarter of the year, bringing the total number of liquidations to 417 for the first six months of 2010. In comparison 1,471 funds shut down in 2008 and 1,023 in 2009.

The number of liquidations as a percentage of the overall number of funds dropped to less than 2%.

However only 201 funds, concentrated in equity hedge and macro strategies, launched during the quarter. That was the lowest number since the second quarter of 2009, according to Hedge Fund Research.

In total there are now 6,982 single-manager funds, down from the 2007 high of 7,634 funds, after 455 launches during the first half of 2010.

Funds of hedge funds (FoHFs) also had their best quarter since the start of 2008 with just 54 liquidations. Since the start of the crisis over 800 FoHFs closed their doors. There are now 2,101 FoHFs.

Hedge Fund Research also said the performance gap between the best and worst hedge funds narrowed during the last quarter. The top decile of hedge funds averaged a return of 52.2% during the 12 months to the end of June 2010, while the bottom decile lost 16.8% - a dispersion of around 69%. Performance dispersion reached a peak level of over 130% in the 12-month period ending in March 2010.

Kenneth Heinz, Hedge Fund Research president, said the reduction in liquidations was a "function of steady performance, improved structural integrity and renewed investor confidence in the hedge fund industry."