Hedge fund closures still outpace launches, industry shrinkage continues

The hedge fund industry continues to shrink — although the pace is slowing a bit — according to the latest report from Hedge Fund Research Inc. During the three-month period ending June 30, the industry saw 182 launches and 292 liquidations, a net decrease of 110 funds. The number of hedge funds fell to 8,946, according to HFR, which calculated the attrition rate to be 3.2% for the second quarter and 4% for the first quarter. With 668 hedge fund liquidations over the first six months of 2009, the industry was well off the pace from the record 1,471 liquidations it saw in 2008. In addition to getting smaller, the hedge fund industry is also becoming slightly more investor-friendly, at least in terms of fees. The average performance fee charged by single-manager hedge funds fell for the third consecutive quarter, to 19.18%. In the first quarter of 2008, the average performance fee hit 19.34%. Average hedge fund management fees were unchanged from the previous quarter, at 1.57%. The most recent data is an example of residual fallout from the economic carnage of last fall, according to Kenneth Heinz, HFR president. “As hedge fund industry consolidation continues, multiple data points suggest that the impact of a tumultuous 2008 remains both widespread and sustained,” he said. “Performance gains since 2009 have been the strongest since 1999, but investors are making demands for greater transparency and structural improvement, setting the stage for the next period of industry expansion.”