Number of New Hedge Funds Rises

Number of New Hedge Fund Launches Rises

With 2,100 hedge funds closed during the credit crisis, few expected a rise in new hedge fund launches this year.  But if new hedge funds continue to launch at this year’s pace, the industry may see the first year since 2005 of annual growth in new fund formations.  Hedge funds appear to be back with renewed investor confidence and new and experienced hedge fund managers ready to try it again.  Hedge fund launches have been consistently falling from 2073 in 2005 to 659 last year but this trend appears to be reversing.

It might also be that funds that had posted huge losses closed down so that the managers could start with fresh records, resetting high-water marks so that they can collect performance bonuses without making up the money lost in 2008.

When Hedge Fund Research unveiled its second-quarter data earlier this month, all eyes were focused on the slowing number of hedge fund liquidations. What was little noticed were the hedge fund launches. Since 2005, they have been falling steadily from a peak of 2073 in 2005 to 659 last year. The slide appeared to be continuing in the first quarter when 148 new hedge funds were launched. But, in the second quarter, 182 new hedge funds were launched, just as the equities markets bottomed.

The rising launches are a “constructive development,” says Ken Heinz president of Chicago-based Hedge Fund Research. “You are continuing to see risk tolerance and risk appetite improving from the historical lows at the end of 2008. ” To be sure, there are still more hedge funds shuttering their doors than opening them, with 292 going out of business in the second quarter alone, according to Hedge Fund Research. But there have been some notable launches.  Source