Hedge fund launches decline, liquidations rise

Launches of new hedge funds dropped to nearly a three-year low in the third quarter of the year and the number of hedge fund liquidations rose to the highest in almost a year. Industry research firm HFR blames anticipation of the Volcker rule.

Some 231 hedge funds were started in the third quarter, down from 288 in the second quarter and 275 in the third quarter of last year, according to HFR. The figure represents the lowest number of quarterly launches since the fourth quarter of 2010, when 220 funds were opened.

Hedge fund liquidations, meanwhile, rose to 222 in the third quarter from 190 in the second quarter and 211 in the third quarter of 2012, the data shows. Quarterly liquidations reached the highest level since the end of last year, which saw 211 hedge funds close shop. Liquidations in the first three quarters of the year fell to 608 from 635 in the same period of last year.

‘Hedge fund launches declined in the third quarter, as both managers, investors and financial institutions awaited the finalization and regulatory approval of the Volcker rule, which includes provisions restricting proprietary trading by financial institutions, as well as restricting ownership of hedge fund firms by financial institutions,’ Kenneth Heinz, president of HFR, says in a press release.

‘While the increased uncertainty has likely adversely impacted hedge fund launches in the short term, over the intermediate to long term, the adoption of the rule is likely to result in increased hedge fund launches, as experienced investment professionals set up new funds utilizing their trading acumen,’ he adds.

In the first three quarters of the year, a total of 816 hedge funds were launched, representing a slight decline from the same period of 2012, when 824 funds were started. The record came in 2005, when 2.073 funds were launched. The last 12-month period has seen the start up of 1,100 new funds, which is slightly below the level of the previous two 12-month periods.