The status of hedge fund startups

May 17, 2016 01:00 PM

The highest number of new funds entering the hedge fund space occurred in 2012 when 1,364 new vehicles came into the market following the introduction of the Volcker Rule, which led to a number of proprietary trading desk spin-offs from investment banks (see “Slowing growth,” below). As this activity has settled, the number of fund launches each year has steadily declined and, although the number of launches in 2015 is expected to rise from the current figure of 942 as more data becomes available, it is unlikely to surpass 1,128 in 2014 and will be the lowest year on record since 2008. 

In Q1 2016 there were 111 new hedge fund launches, significantly below the 158 vehicles that entered the market in Q4 2015. This marks the fourth consecutive quarter in which the number of new funds launched is lower than the quarter preceding it; this indicates that the rate of growth of the hedge fund sector is slowing. 

Single-manager hedge funds accounted for the two-thirds of funds launched in Q1 2016; in comparison their multi-manager counterparts accounted for just 8% of Q1 launches. Launches of liquid alternatives were up in Q1, with UCITS and alternative mutual funds representing 15% and 5% of all launches, an increase from 11% and 4% in Q4 2015, respectively.

The proportion of funds launched by European fund managers has increased in Q1 2016 and now stands at 28% of all funds launched at the start of 2016; this is the continents largest share of launches since Q4 2012. North American-based managers comprise 62% of all fund launches, while the proportion of funds launched by Asia-Pacific-based managers and the rest of world account for one in every 10 fund launches in Q1 2016.

The geographic focus of funds launched in Q1 2016 saw some significant changes from the previous quarter. As uncertainty surrounding China’s economy continued, Asia-Pacific-focused funds accounted for only 3% of all fund launches, a 14-percentage point decline from the previous quarter. Funds seeking opportunities across the globe saw the largest increase in the proportion of launches, accounting for 60% of all launches in Q1 2016, compared to 48% in Q4 2015, and returning to a level seen in the first half of 2015. There was also an increase in funds seeking to make gains from North American markets in Q1 2016; 27% of funds launched in the quarter have a North American focus, compared to 
23% in Q4 2015.

Although equity strategies remain the most prevalent funds launched in Q1 2016, the strategy witnessed a 12-percentage point decline from the final quarter of 2015. Both credit and relative value strategies fund launches fell over the period, together accounting for 10% of all funds launched in the quarter. All other strategies saw increases in their proportion of launches; multi-strategy funds accounted for 23% of all launches in Q1 2016 (up from 17% in Q4 2015), while both multi-strategy and macro funds were up six percentage points from Q4 2015, representing  23% and 10% respectively.

About the Author

Amy Bensted is the head of hedge fund products for Preqin, which tracks more than 6,000 active hedge fund managers who collectively manage more than 15,000 hedge fund products encompassing hedge funds, commodity trading advisors, alternative mutual funds, alternative UCITS and funds of hedge funds.