Although the final data for the end of 2016 has yet to be compiled, analysts expect that last year may be the slowest since 2008 when it comes to new hedge fund launches. The Financial Times reported that the rate of new firm launches for the first three quarters of the year suggested that 2016 was on pace to have the fewest total new firm startups in nearly a decade. At the same time, the number of funds closing was as high as it had been since the financial crisis of 2008 as well.
576 Launches in the First Three Quarters
The first nine months of 2016 brought about 576 new hedge fund launches. Although this may sound like a lot, it is lower by a considerable amount than 2008's 659 launches, Hedge Fund Research has found. At the same period of time, 782 funds were shut down via liquidation. This figure does not match the 1,471 funds that were closed during 2008's crisis, but it is the next highest level since that time.
Some Prominent Launches Nonetheless
Still, despite the pessimistic figures for hedge funds overall, there are some notable funds that are launching, and some notable money managers at work in the process. Marcello Sallusti, for instance, who served as deputy investment chief for Egerton Capital, launched Engadine Partners to focus on European equity. Ben Melkman, formerly of Brevan Howard, launched a new fund in New York City by the name of Light Sky Macro. Managers previously working at BlueCrest Capital and BTG Pactual are starting new funds as well, as is a previous CIO for Perry Capital: David Russekoff is launching a hedge fund called Smith Cove Capital Management.
Lots of Openings and Closures to be Expected
Industry experts say that the volatility of the hedge fund industry and, in particular the focus on certain star managers and traders, prompts the hedge fund world to see many launches and liquidations each year. However, the ebb in the total number of hedge fund openings in 2016 is telling. It reveals a combination of factors that are prohibitive to new funds emerging, including increased regulation and costs, difficulty in securing funding, and reluctant investors. As potential clients have sought out alternative investment areas to hedge funds, funds themselves have seen it more difficult at all stages, from opening to closing. While this may be discouraging to the broader industry, some find that it actually is beneficial to the hedge fund scene overall. With more barriers to the process of launching a new fund, those managers that are able to successfully start a firm tend to be seasoned and well-established. While this is by no means a guarantee of future success, it nonetheless can be reassuring to investors.