Preqin Finds Low Levels of Hedge Fund Launches in 2013

While the level of new hedge fund managers launching firms remains on pace with last year, the actual number of fund launches has dropped significantly in 2013, according to research from Preqin.

Preqin’s Hedge Fund Analyst platform has counted 127 new hedge fund managers as of August 2013, and the company expects the final tally to come in at around 200-220 by the end of the year, once all the data has been collected. This number is consistent with 2011’s high of 218 firm launches, followed by 215 new firms in 2012. Preqin believes these high levels have come partially as a result of the Volcker Rule, where banks are spinning off their proprietary trading desks.

However, regulation has most likely been the cause of a decrease in the actual number of funds launched by these managers. Whereas 2010 saw a high of 1,005 fund launches, 2012 saw a drop to 850, and only 346 have been started so far this year. Europe in particular has seen a drop, as only 8% of the new funds were launched on the continent, compared to 18% in 2012. North America leads the way as the home of more than three-quarters of new funds. The AIFMD has most likely caused this realignment, as firms are waiting to see what the final regulations in Europe will be.

“What we have seen is that fund managers aren’t launching there funds straight away,” says Ross Ford, manager of hedge fund profiles for Preqin.

Once these reforms are in place, though, Preqin expects the levels to balance out closer to where they’ve been in the past.

“We’re expecting in the second half of 2014 for European firm launches to pick up,” says Ford.

But part of the decline in funds can also be attributed to the lingering effects of the 2008 crisis. Before firms start taking in large amounts of outside capital, they need to prove themselves. It’s “more important in the current environment to have a longer track record,” says Ford.

For now, the rate of fund launches around the world is on track to reach the lowest level since 2005, but there could be an increase towards the end of this year as managers get more clarity on regulations.