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March 14, 2013 7:20 pm
The number of hedge funds going out of business rose for the third year in a row in 2012, according to HFR, a data provider. Last year, 873 funds failed or closed their doors out of the estimated 9,800 total, against 775 in 2011 and 743 in 2010.
Those closures were offset by 1,108 new hedge fund launches, slightly down on the 2011 total. The pace of launches has recovered from the low of 659 funds in 2008, but the rate still lags behind the boom years of 2004 to 2007.
“The environment for launches remains very difficult,” said Anne-Gaelle Pouille, a director for Paamco, a fund of funds group that specialises in small hedge funds with less than $1bn in assets at launch.
Ken Heinz, HFR president, said that for the average hedge fund, “the last two years have been a wash. If you look at the whole HFR Index, you are barely up over a two-year period”.
The average hedge fund gained 6.4 per cent in 2012, after average losses of 5.3 per cent in 2011. A simple portfolio of index funds invested 60 per cent in US stocks and 40 per cent in bonds was up 17.5 per cent over the same two year period.
Mr Heinz said that “costs are going up and the requirements on funds in terms of regulatory reporting are also going up”.
Reflecting that tough environment, fees charged by newly launched hedge funds came under pressure. Annual management fees charged by new launches held steady at 1.62 per cent on average, according to HFR, but the performance fees that managers charged on investment profits dropped 34 basis points on the year before to 17.74 per cent. Pre-crisis, performance fees on new launches peaked at 18.7 per cent.
Some high profile funds attracted significant capital and support. London-based Mike Stewart, JPMorgan’s global head of proprietary trading, and former head of emerging markets, launched Whard Stewart with a team of former traders from the bank.
Stone Milliner, led by Jens-Peter Stein and Kornelius Klobucar, spun out of Moore Capital. And Sutesh Sharma, the former head of proprietary trading at Citigroup launched Portman Square Capital with about $500m.
But Ms Pouille said that most funds were offering fee discounts at launch. “There has been a proliferation of what’s called founders classes”, with up to 5 percentage points off performance fees, and reduced management fees, in return for committing capital for two or three years.
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