In one regard the financial world has rebounded to where it was prior to the 2008 crash. A total of 125 hedge funds closed in the three months through June 2018, according to a report by Hedge Fund Research. Q2 of 2018 notched the fourth straight quarter where hedge fund launches passed fund liquidations, though the numbers were both smaller for the previous quarter than they were the time before. This reports that the trend where hedge funds closures have been dropping since 2017.
In Q2 of 2017, 222 hedge funds closed up shop. This is almost 100 more closures that occurred for the equivalent time period in 2018. The 125 liquidations last quarter was the lowest quarterly total since Q3 2017. Simultaneously, 148 funds opened last quarter; this was a decrease from the 180 launches that occurred a year before.
Equity hedge strategy funds have been the front-runner in the tech, healthcare and energy sectors, as reported. The HFRI Fund Weighted Composite Index has increased 1.8 percent year-to-date through August 2018. The report also states that event-driven and relative value arbitrage funds have played a role to the overall industry gains. Specifically, the HFRI Equity Hedge Index notched in returns of 2.3% for the year 2018 through August; the HFRI EH: Healthcare index increased by 14.5% for the same time period.
HFR showed that hedge fund management and incentive fees last quarter were on average the lowest levels in a decade. Though, newly launched funds had advanced in average fees over previous quarters. The average management fees remained around 1.43% across the industry, while the average incentive fee fell to 16.98%. Also, funds that opened last quarter had an average management fee of 1.46% and an average incentive fee of 18.44%, each one increasing more than the previous quarter and the HFR found that hedge fund management and incentive fees last quarter were, on average, at their lowest levels since 2008. However, at the same time, newly launched funds had increases in average fees over previous quarters. Average management fees across the hedge fund space remained steady at 1.43%, while average incentive fee declined slightly to 16.98%. On the other hand, funds launched last quarter had an average management fee of 1.46% and an average incentive fee of 18.44%, each higher than the previous quarter.
HFR President Kenneth J. Heinz indicates that “hedge fund industry growth and performance has been steady through mid-2018, as the tension between U.S. economic growth and U.S. equity dollar gains has not only contrasted with slower growth or weakness in non-U.S. regions, but the disparity has widened in recent months.” Heinz also states, “hedge fund positioning has continued to defensively and opportunistically shift away from the equity beta that dominated 2017 to encompass more neutral-biased, arbitrage positioning across export and trade-sensitive exposures while maintaining a cautious outlook toward mean-reverting currency trades and EM volatility while maintaining core exposures to specialized areas such as U.S. technology.”