New hedge fund launches rose the highest level since 2017 as total industry capital remained above the historic USD4 trillion milestone to begin 2022, according to the latest HFR Market Microstructure Report.
New hedge fund launches rose to the highest level since 2017 as total industry capital remained above the historic USD4 trillion milestone to begin 2022, according to the latest HFR Market Microstructure Report.
An estimated 614 new funds launched in 2021, the highest calendar year total since 2017 when 735 new funds launched.
Meanwhile, an estimated 527 funds liquidated in 2021, the lowest total since 2004 when 296 funds liquidated.
Total industry capital was USD973 billion in 2004, in contrast to over USD4 trillion to begin 2022 as investors maintained or increased positions in existing hedge funds. Factors which have contributed to the declining number of liquidations during the recent uncertain macroeconomic environment include generational inflation, increased government spending, rising interest rates, and increased geopolitical tensions.
After producing a strong +9.9 per cent return in 2021, the investable HFRI 500 Index has exhibited strong defensive capital preservation over the volatile start to 2022, topping equity market losses with a narrow decline of -1.2 per cent through February. Uncorrelated Macro strategies have led performance thus far in 2022, advancing +3.8 per cent through February, with strong gains across Fundamental Discretionary, Commodity and Systematic Trend-Following strategies.
The performance dispersion of the HFRI FWC narrowed in 2021, as top decile of index constituents returned an average of +45.1 per cent over the year, while the bottom decile declined by an average of -14.7 per cent, representing a top/bottom decile dispersion of 59.7 per cent. In comparison, the top/bottom decile of dispersion in 2020 was 85.1 per cent.
Hedge fund fees remained relatively steady in 2021, as the average industry-wide management fee decreased by one basis point from 1.37 per cent to 1.36 per cent over the year, while the average incentive fee declined from 16.35 per cent to 16.1 per cent in 2021. Both estimated fees represent the lowest level since HFR began publishing these estimates in 2008. However, for new funds that launched in 2021, the estimated average management fee rose from 1.24 to 1.33 per cent from the prior year, while the average incentive fee for funds launched in 2021 decreased from 17.25 per cent to 16.18 per cent when compared to funds that launched in 2020.
