According to HFR (Hedge Fund Research), the number of new fund launches in the third quarter of 2013 was the lowest since the fourth quarter of 2010, while the number of liquidations rose to the highest level since the fourth quarter of 2012.
“Hedge fund launches declined in the third quarter, as both managers, investors and financial institutions awaited the finalization and regulatory approval of the Volcker Rule, which includes provisions restricting proprietary trading by financial institutions, as well as restricting ownership of hedge fund firms by financial institutions,” says Kenneth J. Heinz, President of HFR.
The number of new fund launches for the quarter totaled 231, down from 288 in the previous quarter. Year to date, 816 funds have launched, down slightly from the same period last year when 824 funds launched.
As for liquidations, the number increased to 222 for the third quarter, compared 190 in the second quarter this year. However, the number of liquidations is down year to date at 608, whereas 635 funds liquidated during the first three quarters of 2012.
“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,” says Heinz. “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.”
Fees continue to fall, though, as the average management fee dipped 1 basis point from last quarter to 1.53%, while the average incentive fee declined 11 basis points to 18.2%. New funds had even lower fees, as those launched in 2013 have an average management fee of 1.38%, which is 24 basis points lower than those funds launched in 2012. Funds launched in 2013 also saw 57 basis point drop in incentive fees compared to 2012, with an average fee of 17.17%.
Hedge Fund Launches Fall in Q3 in Anticipation of Volcker Rule
According to HFR (Hedge Fund Research), the number of new fund launches in the third quarter of 2013 was the lowest since the fourth quarter of 2010, while the number of liquidations rose to the highest level since the fourth quarter of 2012.