Almost No One’s Starting New Hedge Funds Anymore

Hedge fund performance in 2019 may be the strongest in years — but investors are still pulling their money out.

Illustration by II

Illustration by II

The number of new hedge funds started this year is on track to be the lowest in two decades, even as the industry moves closer to its best annual performance since 2010.

A total 391 funds were launched this year through September, compared to 561 in all of 2018, according to a report Friday from Hedge Fund Research. Launches have not fallen below last year’s level since 2000, when 328 funds started up, HFR data show.

While the hedge industry is heading for its strongest performance in years, the returns are far below what investors may get from a low-cost index fund that tracks the U.S. stock market. Hedge funds lost 0.5 percent during the third quarter, eroding this year’s gains to 8.5 percent through November, HFR data show.

The industry, known for its high fees, has lost favor. Investors have redeemed $82 billion from hedge funds this year, or about 2.6 percent of their total $3.29 trillion of assets, according to eVestment. Outflows have been heavy enough to ensure 2019 will be a negative year, the firm said in a report Friday.

“It likely won’t be the worst since the financial crisis,” eVestment said. “It will just be the second worst.”

While hedge funds are poised to produce their biggest annual gain since 2010, when the HFRI Fund Weighted Composite Index returned 10.25 percent, the vehicles have significantly lagged the U.S. stock market. The S&P 500 index returned about 28 percent this year through December 19.


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Investors have been pulling capital from the majority of mainstream hedge fund strategies, but a couple stand out for relatively strong inflows, according to eVestment.

Event-driven funds are the biggest winners this year, attracting $15 billion through November, the firm’s report shows. Mortgage-backed securities strategies, meanwhile, saw the next strongest inflows at $9.7 billion.

The biggest losers based on outflows this year are long-short equity funds, according to eVestment. Although investors pulled $41.5 billion from the strategy through November, long-short equity funds remain the industry’s largest primary strategy by far with $765 billion under management.