Key Takeaways
- • New hedge fund launches rose to 96 in Q4 2022, up from 71 in Q3 2022, according to HFR's latest Market Microstructure Report, though the Q3 figure was the lowest since Q4 2008.
- • An estimated 144 hedge funds liquidated in Q4 2022, roughly steady versus the prior quarter.
- • For full-year 2022, an estimated 432 new hedge funds launched against 571 liquidations, leaving launches near historical lows.
- • Average industry management fees held at an estimated 1.35% and average incentive fees fell 2 bps to 15.99%, both the lowest levels since HFR began estimating them in 2008.
- • HFR President Kenneth J Heinz said rising launches signal growing institutional commitment to hedge funds, though bank failures may keep the 2023 launch environment challenging.
Summary
New hedge fund launches picked up in the fourth quarter of 2022 as the industry entered 2023, with 96 funds making their debut, up from 71 in the prior quarter, according to HFR's latest Market Microstructure Report. The prior-quarter figure was the lowest since Q4 2008, so the rebound is notable but still modest by historical standards.
Liquidations were steady. HFR estimates that 144 funds closed in Q4 2022. For the full year, an estimated 432 new hedge funds launched while 571 liquidated, a net decline in the number of funds.
Fee levels were also stable. The average industry-wide management fee was unchanged from the prior quarter at an estimated 1.35%, and the average incentive fee fell 2 basis points to 15.99%. Both estimates are the lowest HFR has recorded since it began publishing them in 2008. Funds launched in Q4 2022 carried an average management fee of an estimated 1.18%, down 17 bps quarter on quarter, while their average incentive fee rose to 17.68% from 17.23%. For all funds launched in 2022, the average management fee was an estimated 1.34% and the average incentive fee was 17.74%, up from 16.57% in 2021.
Kenneth J Heinz, President of HFR, said the increase in launches and steady liquidations indicate that institutions are increasing their commitment to hedge funds, as they look to reduce high-beta equity and illiquid private equity holdings in favour of opportunistic, specialized and defensive strategies. He cautioned that full-year launches remain near historical lows and that heightened institutional sensitivity to financial risk following bank failures may keep the launch environment challenging early in 2023, despite strong performance through Q1 2023. Heinz expects institutions to increase exposure to both established and newly launched hedge funds, which he said have demonstrated their resilience through recent years of market dislocation and volatility.
Liquidations were steady. HFR estimates that 144 funds closed in Q4 2022. For the full year, an estimated 432 new hedge funds launched while 571 liquidated, a net decline in the number of funds.
Fee levels were also stable. The average industry-wide management fee was unchanged from the prior quarter at an estimated 1.35%, and the average incentive fee fell 2 basis points to 15.99%. Both estimates are the lowest HFR has recorded since it began publishing them in 2008. Funds launched in Q4 2022 carried an average management fee of an estimated 1.18%, down 17 bps quarter on quarter, while their average incentive fee rose to 17.68% from 17.23%. For all funds launched in 2022, the average management fee was an estimated 1.34% and the average incentive fee was 17.74%, up from 16.57% in 2021.
Kenneth J Heinz, President of HFR, said the increase in launches and steady liquidations indicate that institutions are increasing their commitment to hedge funds, as they look to reduce high-beta equity and illiquid private equity holdings in favour of opportunistic, specialized and defensive strategies. He cautioned that full-year launches remain near historical lows and that heightened institutional sensitivity to financial risk following bank failures may keep the launch environment challenging early in 2023, despite strong performance through Q1 2023. Heinz expects institutions to increase exposure to both established and newly launched hedge funds, which he said have demonstrated their resilience through recent years of market dislocation and volatility.
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