Hedge Fund Launches Hit 18-Year Low

Blame declining investor risk tolerance for fewer fund launches in 2018, according to Hedge Fund Research.

Illustration by II

Illustration by II

New hedge fund launches hit an 18-year low during 2018, new data from data provider Hedge Fund Research shows.

But 2018 was not all bad for the industry: fund liquidations also declined during the year, hitting their lowest point since 2007, according to the report released by HFR on Friday.

A drop in investor tolerance for market volatility, as well as a desire for less risky assets, were to blame for the decrease in new fund launches, the report said. Meanwhile, the liquidations held steady because allocators are interested in holding onto the hedge fund assets they already own, the report showed. HFR’s launch and liquidation data includes both hedge funds and funds of funds.

“Of all the things that we track, the launches and liquidations are some of the trickiest,” said HFR president, Ken Heinz, by phone. “Everything influences them a little bit.”

Just 561 funds debuted in 2018, as compared with 735 during the previous year. Fund launches fell to their lowest level since 2000, when 328 funds were launched, the data show. Fund launches peaked in 2005, when 2,073 funds were started, the data show.

There were 659 liquidations in 2018, as compared with 784 in 2017, the report shows. Liquidations hit their lowest level since 2007, when 563 funds liquidated, the data show.


Liquidations peaked in 2008, when 1,471 funds closed their doors, the report shows. That same year just 659 funds debuted, according to the data.

Of the funds launched in 2018, investors were more likely to put their capital into funds launched by established firms, according to Heinz.

“When the risk tolerance falls, that drives people back into the established funds and firms,” Heinz said by phone Friday.

Funds using macro strategies accounted for nearly half of the fund launches during the fourth quarter, Heinz said. Of the 111 fund launches during the quarter, 50 used macro strategies, he added.

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“Toward the end of the year, when people’s risk tolerance was falling, it was those large macro funds that did reasonably well into the end of the year,” Heinz said.

HFR’s asset-weighted index for macro strategies gained 1.61 percent during the year, making it the best performing of the main strategies during the year, the report shows.

When it came to liquidations during the fourth quarter, though, macro strategies were also the largest category, Heinz said. Of the 215 liquidations during the quarter, 60 were macro strategy funds, or nearly 28 percent.