Hedge Fund Launches Contract in Q3 Despite Record Capital

Hedge funds have been on the decline in 2016, on pace for its biggest contraction since 2009.

Hedge Fund Research (HFR), a provider of comprehensive hedge fund data, performance reports and indices, has reported its latest research study for Q3 2016, which showed a contraction of hedge funds, despite an increase in capital, according to an HFR Market Microstructure Report.

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Q3 2016 experienced a number of surprise episodic events, however this did not result in a gain in hedge fund launches despite funds posting healthy gains in the aftermath of the Brexit referendum. More specifically, new launches of hedge funds in Q3 2016 resulted in only 170 funds, down from 200 in Q2 2016 (-15.0% QoQ) and 269 funds in Q3 2015 (-36.8% YoY).

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The latest launch figures in Q3 are the lowest in the hedge fund industry since Q1 2009, in the midst of the global financial crisis. Moreover, the latest sagging figure caps what has been a fourth straight quarter of contracting hedge fund launches and active funds. Year to date, a total of 576 funds have launched in the first three quarters of 2016, which correlates to a decline of over 200 from the 785 launches over the same period in 2015.

Furthermore, hedge fund liquidations during Q3 2016 also were on the rise, ultimately climbing to 252, compared to just 239 in Q2 2016, or 5.4% QoQ – this figure was unchanged YoY from Q3 2015 with 257 funds liquidated.

Record Capital

YTD, total hedge fund liquidations have totaled 782, presently putting this figure on pace for the highest number of liquidations since the global financial crisis. Despite these woes however, the total hedge fund industry capital increased to a record of $2.979 trillion through Q3 2016, besting a previous record of $2.969 trillion in Q2 2015.

The aggregated number number of hedge funds, including fund of hedge funds, fell to 9,925 in Q3, falling below 10,000 funds for the first time since 2014. The entire research report can be read in full by accessing the following link.

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