Hedge Fund Liquidations Surged as Pandemic Rocked Markets

Parplus Partners is among the many hedge funds that shut down in the first quarter.

Tomohiro Ohsumi/Bloomberg

Tomohiro Ohsumi/Bloomberg

Hedge funds closures have jumped in the coronavirus pandemic, as firms such as Parplus Partners and Malachite Capital Management ran into trouble during the first quarter.

Institutional Investor reported in March that Parplus closed down, while Bloomberg reported that same month that Malachite Capital Management was planning to dissolve. Allianz Global Investors liquidated two of its Structured Alpha hedge funds after heavy losses on stock-options trades, a spokesperson confirmed.

The number of hedge fund liquidations soared in the first three months of this year to 304, the highest since the fourth quarter of 2015, according to a Hedge Fund Research report Tuesday. As coronavirus fears shook markets, the number of newly created hedge funds sank to a near-record low in the first quarter, with total industry assets dipping below $3 trillion.

“The coronavirus pandemic drove steep losses across global financial markets,” Kenneth Heinz, president of HFR, said in a statement. Hedge funds lost 11.3 percent in the first quarter before trimming this year’s losses to 5.1 percent by the end of May, the report shows.

Stocks crashed in the first quarter, with the Standard & Poor’s 500 index losing 20 percent. Within the hedge fund world, equity and event-driven strategies were particularly hard hit, each losing about 15 percent in the first quarter, according to HFR.


As the stock market recovered, equity hedge funds’ losses shrank to 5.7 percent by the end of May, the report shows. Event-driven strategies also staged a partial recovery, posting an 8.7 percent loss over the first five months of this year.

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But the toll from the pandemic was heavy.

Hedge fund closures in the first quarter rose 54 percent from 198 liquidations in the final three months of 2019, according to HFR. Liquidations by the end of March represented 41 percent of last year’s total.

A spokesperson for Allianz Global Investors confirmed that it closed down two of its hedge funds this year after losses on stock-option trades. He said by phone Tuesday that the Structured Alpha funds were wound down in an “orderly fashion.” The Wall Street Journal reported the shutdowns in March.

Parplus and Malachite had also been running volatility strategies. Malachite had pitched investors “U.S. equity-like returns with lower volatility” and less risk than a S&P 500-style index fund, according to regulatory filings.