Fund launches up, liquidations down

Hedge fund launches continue to rise, outpacing liquidations for the second quarter running in a sign of optimism for the industry.

Data from Hedge Fund Research shows an estimated 230 hedge funds were launched in the final quarter of 2009, compared to 165 liquidations. That trend follows a similar pattern in the third quarter of the year.

For the whole of 2009 almost 800 funds were launched compared to over 1,000 liquidations. But the number of liquidations was significantly down compared to 2008, when 1,471 funds liquidated and 659 launched.

Performance fees fell during 2009 to an average of 19.2% for single-manager funds and 6.9% for funds of hedge funds (FoHF). That compared to 19.34% and 8.05% respectively in the first quarter of 2008.

The average performance fee for funds launched last year was 17.6%, 1.6% below the industry average.

Hedge funds are also employing low levels of leverage. Hedge Fund Research said approximately 40% of single-manager funds were employing no leverage. A further 52% used leverage of between one and two times their capital.

The research uncovered increasing dispersion between the best and worst-performing funds. The top 10% of funds returned an average of 100% last year, compared to a 16.5% loss for the bottom 10%.

Overall the sector had a much better year in 2009 than 2008, with 80% of funds posting a positive performance compared to just 30% in 2008.

Hedge Fund Research president Ken Heinz said the evolving landscape in terms of capital, strategies, service providers, fees, regulation, liquidity and transparency was likely to define the industry's growth in the next decade.