Hedge Fund Numbers Decline Slightly

The trailing 12-month period to the end of Q3 2023 saw a very slight net decline in the number of hedge funds, according to indexation and research firm HFR.

HFR says new hedge fund launches in Q3 numbered 127, down from Q2’s 133, while an estimated 100 funds liquidated in Q3, down from 109 in Q2. This means, HFR says, that the number of estimated hedge fund liquidations in the 12-month trailing period to end-Q3 just outnumbered new launches by 455 to 449.

Hedge fund fees declined through Q3, as managers positioned for growth and inflows to begin 2024, HFR says, revealing the average industry-wide management fee declined 1 basis point from the prior quarter to 1.35%, while the average incentive fee decreased by 18 bps to 16.01%. For funds that launched in Q3, the average management fee was an estimated 1.22%, while the average incentive fee was an estimated 17.82%.

In the trailing 12-month period ending to Q3, the top decile of HFRI Fund Weighted Composite Index constituents returned an average of +32.7%, while the bottom decile declined by an average of -15.1%, representing a top/bottom decile dispersion of 47.9%.

“Hedge fund performance and growth trends continue to be dominated by inflation and interest rates with these having experienced a major inflection point in late 2023 as inflation and interest rates posted sharp declines into year-end, easing and reversing the primary source of volatility in financial markets for the past two years,” says Kenneth Heinz, president of HFR. “Strong performance through this intense volatility is likely to drive performance and capital flows through H1 2024 with leadership from multi-strategy funds which have successfully navigated this market cycle. While managers and investors alike are positioning for this welcome decline in rates, funds also continue to position for the possibility of unexpected reversals or unpredictable dislocations which can occur as a result of geopolitical risk or shifts in the macroeconomic outlook.

“Institutions are likely to remain focused on specialised inflation and interest rate trading, and expanding their exposures to hedge funds which have both demonstrated their robustness and increased their portfolio focus on these areas in recent months,” he adds.