Hedge funds dying on the vine

The number of hedge fund launches and liquidations fell during the first three quarters of the year and are off at an approximately 25% annual rate for the second consecutive year, according to Hedge Fund Research Inc. Eight hundred and sixty three funds had been introduced while 408 funds have been liquidated during the first three quarters of the year. That compares with 1,518 new funds and 717 liquidations for all of 2006. There were 2,073 launches and 848 liquidations in 2005, which was a record-setting year. "One possible issue is the ongoing consolidation of capital in larger funds," said Ken Heinz, president of HFR, according to a statement. "In the third quarter of this year, investors allocated nearly 90% of new capital to funds with greater than $1 billion already under management. Investor requirements for size and infrastructure may be making it more challenging to launch a new fund." If launches and liquidations remain at their current pace through the fourth quarter, the industry would see the fewest number of launches since 2003, when 1,094 new funds were introduced, and the lowest liquidation total since 2004, when 296 funds were shut down. The overall fund attrition rate for the first three quarters of 2007 was 4.32%, compared to 8.28% for all of 2006 and 11.4% in 2005.