This content is from: Portfolio

Hedge Fund Closures Plummet to Pre-Crisis Level

As hedge fund liquidations fell, fees for new funds ticked up, according to HFR.

Hedge fund closures have dropped to a level not seen since before the 2008 financial crisis. 

A total 125 funds liquidated during the three months through June, down 44 percent from the same period last year. It was the lowest number of hedge fund closures since the third quarter of 2007, according to a Hedge Fund Research report Thursday.

The data tracker said hedge fund assets climbed to a record $3.24 trillion at the end of June, after firms started more new funds than they closed in the first six months of this year. Managers navigated global trade tensions and slowing economic growth outside the U.S. to produce average returns of 1.75 percent during the first eight months of 2018, according to HFR.

“Institutional investors continue to expand alternative allocations,” HFR president Kenneth Heinz said in the report. “Hedge fund positioning has continued to defensively and opportunistically shift away from the equity beta that dominated 2017 to encompass more neutral-biased, arbitrage positioning across export and trade-sensitive exposures.”

The hedge fund industry gained 8.59 percent last year as the U.S. stock market soared amid synchronized global growth. Managers today are maintaining core exposures to specialized areas such as U.S. technology, while keeping a cautious eye on volatility in emerging markets, according to Heinz.

Bets in developing countries have struggled in 2018, particularly in Asia, India, and Latin America, the report shows. The HFRI emerging markets index has lost 5.87 percent this year through August, compared to a 19.36 percent gain in all of 2017. 

[II Deep Dive: Cliff Asness: Hedge Funds Are ‘Petering Out’]

According to Heinz, hedge fund investors are “carefully considering fundamental aspects of fees and liquidity on portfolio performance.” 

During the second quarter, the average for hedge fund fees remained at the lowest level since 2008, even as fees rose for new hedge funds, according to HFR.

Funds created in the three months through June charged average management fees of 1.46 percent, up 27 basis points from the first quarter, the report shows. Their average incentive fee for performance, meanwhile, rose 128 basis points to 18.44 percent.

The new funds are more expensive than industry average, a management fee of 1.43 percent for management and 16.98 percent performance fee.

HFR said the traditional 2-and-20 structure is no longer widely used, estimating that only about 30 percent of managers charge such fees or higher.

Related Content