Hedge Fund Launches Remain Strong — at Least in the First Quarter

Equity and macro strategies were the most popular new funds, but liquidations are also on the rise.

Eilon Paz/Bloomberg

Eilon Paz/Bloomberg

Hedge fund managers were on a roll with new launches last year and they aren’t retreating — at least according to data for the first quarter.

During the first three months of the year, 185 new hedge funds were launched, up from 113 in the fourth quarter of 2021, according to Hedge Fund Research. The number was just a little shy of the highs set in the first quarter of 2021 and the fourth quarter of 2017, where 189 and 190 new funds were launched, respectively.

HFR pointed to macro hedge funds as a key driver for new launches. “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,” Heinz said in a statement. HFR said the new launches were also driven by investors’ desire to protect against inflation, geopolitical tensions, and macroeconomic uncertainty.

Still, only 45 of the new launches were macro hedge funds, while 78 were equity funds. Funds specializing in event-driven and relative value arbitrage strategies were the next most popular start-ups.

Jon Caplis, founder and CEO of PivotalPath, said his own research and conversations with prime brokers and others shows an environment for new institutional-quality launches that isn’t quite as robust as what HFR sees. “There have been some new launches this year for sure, however, most have been in equity long-short, commodities and multi-strategy,” he told Institutional Investor.


Commenting on why there haven’t been more macro fund launches, Caplis said it typically takes a year and a half after a string of good performance to see both interest from investors rise and, as a result, fund launches increase. “In the last eight months or so, macro funds have been doing really well. That being said, it’s not like they’ve been knocking it out of the park for the last number of years,” he added.

According to HFR data, macro strategies have returned 9.4 percent year-to-date. Meanwhile, the S&P 500 lost 12.8 percent. In 2021, both equity hedge funds and event-driven hedge funds generated double-digit returns, while macro hedge funds delivered an average return of 7.7 percent.

The declining cost of running a hedge fund may have contributed to the rising number of new products in the first quarter of 2022 — at least on the margin. Since 2017, the breakeven cost of running a hedge fund has declined by 25 percent, according to research from the Alternative Investment Management Association and Cowen.

Hedge fund liquidations also increased slightly. HFR estimated that 126 funds closed in the first three months of 2022, up from 117 in the fourth quarter last year. The trend is likely to continue in the second quarter with the big name closings like Gabe Plotkin’s Melvin Capital Management and Robert Bishop’s Impala Asset Management.

“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,” according to Heinz.