Hedge fund launches have declined this year for the third consecutive year, according to Hedge Fund Research Inc. of Chicago.
By the end of the third quarter 863 funds had been launched this year, versus 1,518 funds launched in all of last year and 2,073 in 2005, the research firm said in a report issued last week. Liquidations also slowed; 408 funds closed in the first three quarters, compared with 717 last year and 848 in 2005.
The research firm said the slowing launches and liquidations in a roughly $1.9 trillion industry with more than 9,000 funds suggests investors are more inclined to allocate to larger, more established funds, which are likely to be more diversified and have better risk controls.
That contrasts with previous years, when investors often clamored to invest in the latest funds, particularly those founded by high-profile former investment bank proprietary traders.
According to Hedge Fund Research, in the third quarter investors allocated nearly 90% of new capital to funds with more than $1 billion already under management. "Investor requirements for size and infrastructure may be making it more challenging to launch a new fund," the report said.
