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Hedge fund launches plummet as corona crisis kicks in

hedge_funds_volatilityHedge fund launches slowed to a near-record low in the first quarter of this year, outpaced by liquidations which reached their highest level since 2015, new data shows.

Around only 84 hedge funds were launched in the three months up until the end of March – the lowest quarterly estimate since the financial crisis of 2008, according to a study by Chicago-based Hedge Fund Research (HFR).

This decline was put down to coronavirus-sparked uncertainty, as the pandemic drove “intense” volatility across asset classes, steep equity market declines, and near record lows in investor risk tolerance.

The total of liquidated hedge funds surged to an estimated 304 throughout the quarter – the highest liquidation figures since just under five years ago, and an increase of over 50% from the end of 2019.

The difference between the best and worst performing hedge funds also ballooned in the first quarter. While the top ten strategies saw gains of 15.5% over the period, the bottom decile fell by over 40%.

According to Kenneth J. Heinz, president of HFR, the environment for launching funds has been “extremely challenging” this year because of the Covid-caused hit to risk appetite, volatility, and other factors.

“New fund launches fell to historic lows in 1Q20 as the coronavirus pandemic drove steep losses across global financial markets, despite strong outperformance of the HFRI throughout the pandemic volatility,” he said.

Heinz also added that he has hopes for a more positive second half of the year, and expects “forward-looking” institutional investors to create a more favourable environment for hedge fund launches.

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