The number of new hedge fund launches held steady in the first quarter of 2023 as institutions looked for defensive and opportunistic portfolio setups, according to a new report from Hedge Fund Research (HFR).
Between January and March, hedge fund launches totaled 93, similar to the 96 recorded in the fourth quarter of 2022, finds the HFR Market Microstructure Report. These levels mark a recovery from the historic low of 71 launches in Q3 2022.
Hedge fund liquidations, meanwhile, came in at 102 during the first quarter of this year, down from 144 in Q4 2022, says HFR. Overall, 340 hedge funds launched in the 12 months prior to March 31, 2022, while there were 547 liquidations.
‘The steady level of new fund launches combined with the decrease in liquidations indicates that institutions are increasing commitment to hedge funds as they seek to pare back high beta equity and illiquid private equity holdings in favor of opportunistic, specialized, defensive portfolio positions,’ says Kenneth Heinz, president of HFR, in a statement.
‘Strong demand from institutional investors has been focused on defensive portfolio capital preservation, opportunistic exposures through volatile financial turmoil, increasing interest in multi-strategy inflation trading teams, and on technology, artificial intelligence and cryptocurrency exposures.’
Heinz predicts that institutions are likely to ‘increase their exposures to hedge funds’ that have ‘demonstrated their robustness through several recent years of dislocations and intense volatility across the range of asset classes’.
The performance dispersion of hedge funds has narrowed slightly between Q4 2022 and Q1 2023, notes HFR. Within the HFRI Fund Weighted Composite Index, the difference in return between the top and bottom deciles stood at 24 percent in the first quarter, compared with 28 percent over the preceding three months.