New hedge fund launches declined 40% in the second quarter of 2026, while liquidations fell by almost half, amid rising interest rates and market volatility, according to HFR's latest Market Microstructure Report, as reported by Opalesque.

An estimated 100 hedge funds launched during Q2, down from 166 in the previous quarter. Liquidations fell to 70 from 129 in Q1, which had recorded the highest number of closures since the second quarter of 2024.

The slowdown follows 561 fund launches in 2025, the highest annual total since 2021, while total hedge fund industry assets reached a record $5.63tn at the end of Q2 2026.

Equity Hedge strategies accounted for the largest share of new launches, with 40 funds, followed by Macro strategies with 27. The two categories also recorded the most closures, with 31 Equity Hedge and 20 Macro funds liquidated during the quarter.

“Hedge fund liquidations and launches both fell sharply through mid-2026 in response to accelerating market volatility, which was driven by sharp increases in global interest rates, as well as other ongoing risks,” said Kenneth Heinz, President of HFR.

He added that the figures pointed to a more challenging fundraising environment for emerging managers, as investors continued to favour larger, established firms, particularly those running Macro strategies.

Performance dispersion also widened during the quarter. The top-performing decile of funds in the HFRI Fund Weighted Composite Index returned an average of 31.6%, compared with an 8.7% decline among the bottom decile.

The resulting 40.3 percentage-point spread was up from 30.1 percentage points in Q1.

Industry-wide management fees remained unchanged at an average of 1.32%, while incentive fees edged down to 15.74%. Funds launched during Q2 charged an average management fee of 1.26% and an incentive fee of 17.5%.

Among service providers, Goldman Sachs and UBS led prime brokers by hedge fund assets under management, while SS&C GlobeOp, Citco Fund Services, IFS State Street and Northern Trust remained the largest hedge fund administrators, according to HFR.