Hedge Fund launches on the Rise
Posted by Colin Lambert. Last updated: July 5, 2022
New hedge fund launches jumped to the highest level since 1Q 2021 and reached the second highest quarter since 4Q 2017, according to the latest HFR Market Microstructure Report from HFR, 185 funds were launched in the first quarter of 2022, up from 113 in the fourth quarter of 2021.
This is the highest launch rate since 189 new funds launched in Q1 of 2021, and the second-highest quarter since 190 funds launched in Q4 2017. In the trailing 12 months to the end of the first quarter of 2022, an estimated 610 total new hedge funds have launched, HFR says. Perhaps unsurprisingly, given how well the sector is performing, new Macro hedge fund launches were second only to the industry-staple Equity funds in the number of launches, with 45. Equity launches continue to lead with 78 in the quarter, in spite of the HFR Macro Index being 14.1% up to the end of May, while the Equity Index is down 9.1% over the same period.
It was not all one way, however, for HFR reports the number of hedge fund liquidations increased narrowly from the prior quarter, as an estimated 126 funds closed its doors in Q1, up slightly from 117 fund liquidations in Q4 2021. In the trailing 12 months to the end of Q1, an estimated 494 funds have liquidated.
Hedge fund fees remained steady to begin 2022, as the average industry-wide management fee was unchanged at an estimated 1.36% in Q1, while the average incentive fee decreased narrowly by four basis points to 16.03%. Both estimated fees represent the lowest level since HFR began publishing these estimates in 2008.
Average management fees for funds launched in Q1 also remained steady from launches in the prior quarter, declining only one basis point to 1.36%. Average incentive fees for funds launched in Q1 declined to an estimated 15.6%, down slightly from 16.2% from funds launched in Q4 2021.
“Macro hedge fund performance and industry-wide defensive outperformance of steep equity and fixed income losses drove a strong environment for new hedge fund launches in 1Q22,” says Kenneth Heinz, president of HFR. “New launches are driven by strong institutional demand for inflation protection and defensive capital preservation through unprecedented geopolitical and macroeconomic uncertainty.
“This year has been dominated by powerful risk-off sentiment as gains across uncorrelated Macro strategies have accelerated through the mid-2022 with contributions from commodity, fundamental discretionary, and quantitative trend-following exposures,” he continues. “As these trends continue to dominate performance through mid-year, it is likely that institutional investors will continue to expand allocations to both Macro funds and the entire industry with the objective of defensive capital preservation, reduced portfolio duration, and powerful inflation protection from these increased allocations.”