Chicago-headquartered HFR gave one of its barometer checks on the state of the world”s hedge fund sector, noting that fees remained near historic lows and that the desire to launch new strategies fell in the final quarter of 2023.
New hedge fund launches fell while liquidations held steady in
the fourth quarter of last year, according to industry data.
The estimated number of new hedge fund launches in Q4 2023
fell to 85, the lowest since the third quarter of 2022, bringing
the total number of estimated launches to 438 funds for 2023,
Hedge Fund
Research said in a report.
A total of 104 hedge funds were liquidated in Q4, HFR said –
a modest rise from the previous quarter, at 100. For all of last
year, an estimated 415 funds were liquidated.
Over past decades, wealth managers, private banks and family
offices have used hedge funds to spread risks, tap into new
sources of market-beating return, for example. However, the
sector had a tough period in the decade after the 2008 crash when
equities rose on the back of very low rates, as this dampened the
incentive to spend money to find market “Alpha”.
Launches were led by multi-strategy funds, with total launches in
relative value arbitrage totaling 147 for 2023, with more
than half of the launches taking place in Q4.
In performance terms, the HFRI Fund Weighted Composite Index®
(FWC) gained 8.1 per cent in 2023 and added 2.4 per cent over the
first two months of 2024, having now posted four consecutive
positive months leading into March.
Equity hedge strategies led strategy performance so far this
year. The HFRI Equity Hedge (Total) Index advanced 3.0 per cent
through February.
Funds’ fees ended last year near historic lows, HFR said. The
average industry-wide management fee was unchanged from the prior
quarter at an estimated 1.35 per cent, while the average
incentive fee saw a minimal quarterly increase of 3 bps to end
the year at an estimated 16.04 per cent.
For funds that launched in the fourth quarter of last year, the
average management fee rose an estimated 1.5 per cent, while the
average incentive fee increased to an estimated 18.23 per
cent.