According to some recent research released in 2015, the biggest number of hedge funds has closed their doors since the financial crisis. The performance of the industry was dragged down by the turbulent markets.
According to the Hedge Fund Research data, 2015 has seen the highest amount of liquidations since 2009. In 2014, there were 864 funds closing, but in 2015 the number went up to 979. In 2015’s fourth quarter, the lowest number of hedge funds was started since 2009. The fourth quarter saw 183 openings, whereas in the third quarter there were 269.
The figures are related to the era during which a large number of industry’s well-known names experienced huge losses. For example, HRF data showed that last year the HFRI Fund Weighted Composite Index fell by 0.9%. December saw a number of funds converted into family offices, including Doug Hisch’s Seneca Capital and Michael Platt’s BlueCrest. Some shut down completely. That is what happened to Lucidus Capital Partners.
Hedge fund clients became worried and fearful because of the jerky markets. They found these markets unsettling and worrisome. According to HFR’s president Kenneth Heinz, during the second half of the year they were impatient with the poor returns, so a large number began withdrawing their money, taking back possession of it because of lagging funds.
“Investors have become more and more discerning in their capital allocations, and the setting for launching a new fund remains highly competitive,” he said.
Last year, around 80% of all new money coming into the prime brokerage group at Barclays went into the top 20% of funds by assets. As of now, this year is not looking any better.
In January, between the losses and the redemptions in the market, assets invested in hedge funds dropped by $64.7 billion, resulting in a total of less than $3 trillion dollars in the industry. This is the first time the industry was able to cross that threshold since May 2014. According to the data provided by eVestment, January was the worst month since January 2009.
February is usually a month for large inflows. Around $3 billion dollars in new money were trickled in. Compare that to last year, when only $18.6 billion were invested (eVestment data). Investment losses dragged down the total assets by nearly $20 billion to $2.95 trillion.
The strategy that has been working the best this year is dictated by computers. The list of best-performing funds has been dominated by methodical hedge funds that surf the trends using financial models in combination with algorithms
Trend-following specialists together with quantitative specialists are often referred to as commodity trading advisers because of the type of legal set-up they have and how they focus on profit when the direction within the market is clear. Unfortunately, they too have lost money in the past four out of five years.
When there is less competition, survivors get help: a recent survey found crowding to be the biggest reason for the underperformance last year, driven by an impressive number of hedge funds where there were too few opportunities.
Rather than raising money for these hedge funds, a large number of asset allocators decided it was better to recycle capital, moving from one manager to the next, with the strategies focusing on the volatility that seemed to be the most popular.
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