The number of hedge fund launches dropped while the number of liquidations rose in the third quarter of the year while the industry awaited the details of the controversialVolcker Rule, which limits how financial institutions can invest in alternative assets.
According to data from Hedge Fund Research, hedge fund launches declined to their lowest level in nearly three years while liquidations rose to the highest level in a year.
The research firm linked the trends in launches and liquidations to the efforts of US regulators to approve the Volcker Rule, which was passed last week.
There were 231 new launches in the quarter, down from 288 in the previous quarter, and 222 liquidations, up from 190.
“Hedge fund launches declined in the third quarter as both managers, investors and financial institutions awaited the finalisation and regulatory approval of the Volcker Rule, which includes provisions restricting proprietary trading by financial institutions, as well as restricting ownership of hedge fund firms by financial institutions,” says Kenneth J. Heinz, president of Hedge Fund Research.
“While the increased uncertainty has likely adversely impacted hedge fund launches in the short-term, over the intermediate to long term, the adoption of the rule is likely to result in increased hedge fund launches, as experienced investment professionals set up new funds utilizing their trading acumen.”
Hedge fund management and incentive fees declined in the third quarter, with average management fees falling one basis point to 1.53% and incentive fees declining 11 basis points, to 18.2%, says the research.
Hedge funds launched this year had an average management fee of 1.38% and an incentive fee of 17.17%, lower than those launched last year.
The top decile of hedge funds tracked by Hedge Fund Research gained 13.26% while the bottom decile lost 8.26%.