Hedge fund launches decline in 2006
Alistair Barr, MarketWatch
Last Update: 5:07 PM ET Mar 29, 2007
SAN FRANCISCO (MarketWatch) -- The cycle of creation and destruction in the $2 trillion hedge fund industry slowed slightly in 2006, according to a study released on Thursday by Hedge Fund Research.
During 2006, 1,518 funds were introduced and 717 funds liquidated, compared to 2,073 new funds and 848 closures in 2005, HFR said.
The overall fund attrition rate for 2006 was 8.28%, the second-highest rate recorded by HFR since 1995, when it began tracking such information. The highest attrition rate was 11.4% in 2005.
For 2006, hedge fund launches returned to a level closer to the 2004 total of 1,435, while liquidations remained near historically high levels. The total number of liquidations in 2004 was just 296, HFR noted.
Hedge funds use short selling and other tactics that allow them to bet against stocks and other securities, as well as going long. The bigger tool box has helped the industry outperform more traditional funds during times of market stress. But in recent years, the stock market has climbed steadily, diminishing the value of that potential advantage. That in turn has reduced the number of hedge fund launches, HFR said.
"While the absolute number of funds and the amount of aggregate assets managed in hedge funds continued to grow, hedge fund launches in 2006 fell as a percent of the overall hedge fund universe to the lowest rate since 2000," Kenneth Heinz, president of HFR, said in a statement.
This is consistent with the historical pattern in which hedge fund launches (as a percentage of the industry) decline during periods of strong traditional asset class performance and increase in periods where hedge funds outperform, he added. |
