By Hedge Fund Research, Inc. of Chicago
Total hedge fund industry assets increased to a record of $2.25 trillion, according to the latest release of the HFR Market Microstructure Industry Report, released today by HFR, the leading provider of indexation, research and analysis for the global hedge fund industry.
New fund launches totalled 1,108 for 2012 – in line with the 2011 total of 1,113. As hedge fund liquidations also rose, but to a greater extent, with 873 funds liquidating for the full year 2012, compared to 775 in 2011, net fund formation last year was down on the previous year. Liquidations in 2012 were concentrated in Equity Hedge, with over 300 funds liquidating in the strategy. Launches were distributed across Macro, Relative Value and Equity Hedge strategies.
Index performance dispersion narrowed slightly over 2011, but with substantial improvement in the performance of the top decile of HFRI constituents. The top decile of all HFRI constituents posted an average gain +32.6 percent for 2012, increasing from the record low of +19.5 percent from 2011. The performance decline of the bottom decile narrowed to -16.0 percent from the 2011 decline of -30.7 percent, creating a top bottom decile dispersion of 48.6 percent for 2012. The HFRI Fund Weighted Composite Index gained +6.4 percent in 2012, versus a disappointing decline of -5.25 percent from the prior year.
Management and incentive fees declined industry wide, with average management fees falling by 1 bps to 1.56 percent, while average incentive fees fell to 18.54, a decline of -17 bps for 2012. Fee data shows a mixed trend by vintage year of launch, with funds launched in 2012 charging an average management fee of 1.62, an increase of 1 bps over the prior year; average incentive fees for 2012 launches fell from 18.08 to 17.74 percent.
“Despite total industry assets increasing to a record level, the capital raising environment continued to be challenging for emerging managers, including both small and mid-sized funds, as well as newly launched funds. While emerging manager performance has been strong, the bulk of the capital raised in the past two years has been allocated to the industry’s most well-established firms,” stated Kenneth J. Heinz, President of HFR. “In order to raise new investor capital, hedge funds must not only demonstrate both superior performance and an innovative strategy, but also increased organizational efficiencies of competitive fees, transparent structures, sophisticated risk management and satisfaction of extensive institutional due diligence processes. With equity markets at record valuations and historically low fixed income yields, investors are continuing to actively allocate to hedge funds across different strategies and capitalizations, as these powerful trends drive capital flows through mid-2013.”