The Morning Brief: New Fund Launches Fall in Q3
Is there trouble in hedge fund land? The number of new hedge funds totaled 231 for the third quarter, down from 288 in the prior quarter and 275 in the third quarter of 2012, according to a new report from industry tracker Hedge Fund Research. This is the lowest number of quarterly launches since the fourth quarter of 2010, when 220 funds were trotted out to the market, the firm reports. In a quarterly report, Kenneth Heinz, president of HFR, attributes the decline in hedge fund launches to managers, investors and financial institutions awaiting the finalization and regulatory approval of the Volcker Rule, which among other things restricts proprietary trading by financial institutions and their ownership of hedge fund firms.
“While the increased uncertainty has likely adversely impacted hedge fund launches in the short-term, over the intermediate to long term, the adoption of the rule is likely to result in increased hedge fund launches, as experienced investment professionals set up new funds utilizing their trading acumen,” Heinz states in a press release. “As a result of this, hedge funds are likely to expand in scope to assume an increasingly mainstream role in global capital markets, evolving the role of liquidity provision and proprietary trading into a codified, independent and risk balanced investment strategy for sophisticated investors.”
The HFR report also noted that 222 hedge funds were liquidated in the third quarter. This is way up from 190 the previous quarter and 211 liquidations during the third quarter of 2012. It is also the highest quarterly total since 238 funds shuttered in the fourth quarter of 2012. Not surprisingly, the most liquidations took place in 2008, when 1,471 funds closed down and returned money to investors, according to HFR.
HFR also notes in its report that hedge fund performance dispersion narrowed somewhat compared to a year ago. It calculates that the top 10 percent performers in the third quarter gained 13.26 percent on average, while those who were among the group of investors comprising the 10 percent worst performers lost 8.26 percent. This resulted in a “decile dispersion” of 21.5 percent. This was down from 22.8 percent in the second quarter. However, in the trailing 12 months, the top decile of funds tracked by HFR gained 38 percent on average, while the bottom 10 percent fell 19.2 percent, resulting in a performance dispersion of 57.2 percent. This is a wider margin than the 50.2 and 48.6 percent dispersion of each of the prior two calendar years.
Hedge funds made $190 million this past week shorting PSA Peugeot Citroen, according to Reuters. Among those with the biggest bets against the French stock: London–based Odey Asset Management and New York–based D.E. Shaw & Co. Other hedge fund firms with short positions in Peugeot included London–based Marshall Wace and Adage Capital Management.
The Securities and Exchange Commission announced it will host a compliance outreach program for investment companies and investment advisers on January 30 at the SEC’s Washington, D.C headquarters. Among the topics of most interest to hedge funds: The JOBS Act, alternative mutual funds, difficult-to-value investments (hear that, GLG?), and recent enforcement actions.