Hedge fund industry assets grew to a record in the third quarter as institutional investors sought higher returns and new funds were created amid a risk-averse market atmosphere, according to industry analysis firm Hedge Fund Research (HFR).
Total hedge fund assets climbed to $2.2 tn at the end of the third quarter of 2012, up from $2.1 tn at the end of the previous quarter, more than making up for the decline from $2.13 tn in the first quarter, HFR says. At the same time, 275 new hedge funds were created in the third quarter, an increase from 245 in the second quarter.
‘Hedge fund launches continue to be strong into year-end despite continued prospects for regulation and political uncertainty as a result of increased demand from institutional investors facing the challenge of achieving required rates of return through the current environment of low fixed-income yields and high market volatility,’ says Kenneth Heinz, president of HFR, in a statement.
Despite the increase in new launches in the third quarter, the number of new hedge funds in the 12 months through the third quarter totaled 1,094, below the 1,113 hedge fund launches recorded in 2011, HFR says.
The type of hedge funds being created has also changed, HFR adds. Creation of single-manager hedge funds in the third quarter drove the number of such funds to a record of 7,867 while the number of funds of hedge funds declined to below 1,900, the lowest since the first quarter of 2005. Around 100 macro funds were launched in the quarter, along with more than 70 new relative-value arbitrage funds and 60 equity hedge funds, HFR states.
‘Recent hedge fund launches reflect the dynamic evolution of the entire hedge fund industry since 2008, with investor preferences moving from equity market beta and funds of hedge funds toward macro and arbitrage funds, which are able to accommodate the demand for transparency, liquidity and cost-sensitivity of institutional investors,’ Heinz says.
The fees charged by hedge funds declined in the third quarter, with the average management fee dropping to 1.56 percent from 1.57 percent and the average incentive fee declining to 18.62 percent from 18.67 percent, the research shows.
HFR also says the difference between the top-performing and bottom-performing hedge funds increased, after narrowing throughout last year. The top decile of funds gained an average of 34 percent in the 12 months to the end of the third quarter while the bottom decile dropped 18.9 percent.
