Hedge Fund Closures Rise in 2016
Report sees fees move down as performance moves up in the top decile.
BY Caroline Cakebread | March 20, 2017
The pace of hedge fund closures is on the rise even as the industry surpassed $3 trillion in assets globally according to a report from Hedge Fund Research. All told, the number of closed funds in 2016 reached the highest level since 2008, with 1,057 funds closing their doors last year.
There are now 9,803 hedge funds globally and new launches are slowing – there were 729 funds introduced in 2016 down from 968 the year before.
Along with the closures and decline in the number of new funds, fees are also moving down – average management and incentive fees for new funds launched during the year fell to 17.71%, 4 basis points less than for funds launched in 2015.
Performance, however, ticked up for the top decile funds which gained an average 32.7% return for the year – up 20.3% from the year previous. Funds in the bottom decile, however, fell an average of -15.5% — up from -25.1% in 2015.
Kenneth J. Heinz, Hedge Fund Research’s president, pointed to some ongoing trends in the hedge fund industry such as the shift of investor capital to mid-to-large hedge fund firms, continued pressure on fees, and persistently low interest rates. Going forward, he pointed to continued “macroeconomic normalization” as a factor that will drive strong performance for some strategies in 2017.