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Jan 09, 2023

New hedge fund launches slip to 2008 levels

Risk-off environment leads to fewer launches and closures, finds HFR

New hedge fund launches have fallen to levels not seen since the global financial crisis, according to a new report from data firm Hedge Fund Research (HFR).

In the third quarter of 2022, the estimated number of fund launches dropped to 71, down from 80 in the previous quarter, reveals HFR. This marks the lowest figure since 56 new launches in the fourth quarter of 2008.

Hedge fund liquidations have also slowed: Q3 2022 saw an estimated 145 closures, compared with 156 in the previous three-month period, says HFR. Over the trailing 12 months to September, the hedge fund industry recorded 449 launches and 544 shutdowns.

Broadly, hedge funds had a good year in 2022, helping investors to preserve capital as major indexes took part in a prolonged bear market. But the uncertain environment means less investment for new, smaller funds, hence the decline in launches.

'Challenging environment'

The environment has ‘contributed to a challenging [situation] for new and recently launched funds, as overall risk tolerance has declined, leading to institutions focusing allocations on well-established funds that have successfully navigated much of the 2022 volatility,’ says Kenneth Heinz, president of HFR, in a statement.

‘Similar risk-off sentiment has also contributed to steady but historically low levels of fund liquidations, with institutions maintaining exposures through the current economic turmoil and tension between inflation and economic weakness heading into 2023.

Kenneth Heinz, HFR
Kenneth Heinz, president of HFR

‘With significant uncertainty and wide disparity in economic outlooks into early 2023, it is likely that both launches and liquidations remain near historic levels, as institutions carefully evaluate opportunities and deliberatively position portfolios for volatility in 2023.’

The HFRI 500 Fund Weighted Composite Index, a global benchmark of single-manger funds, posted a decline of just 2.78 percent in the year to November, compared with an 18 percent fall for the S&P 500.

Over the same time period, the HFRI 500 Macro Index displayed returns of 14.3 percent. Macro hedge funds, which invest across asset classes, were boosted by short equity and debt positions, plus long dollar and commodities holdings, says HFR.