An estimated 96 hedge funds were launched in the fourth quarter of 2022, up from 71 in the previous quarter, according to a Friday report from HFR, a research firm tracking the global hedge fund industry.
The third quarter figure was the lowest level of launches since the fourth quarter of 2008, when only 56 funds were launched during the depths of the global financial crisis, the report noted.
On the whole, an estimated 432 hedge funds were launched in 2022, while an estimated 571 funds were liquidated during the year.
The number of launches in 2022 marked the lowest figure since 328 were launched in 2000, according to a chart in the report. The highest number of launches, 2,073, was in 2005.
An estimated 144 funds were closed in the fourth quarter of 2022 alone, almost matching the 145 closings in the third quarter.
The largest number of liquidations in one year, 1,471, occurred in 2008.
In addition, HFR noted in the release that the HFRI 400 (U.S.) Fund-Weighted Composite index has gained 2% year-to-date through the end February, led by event-driven and equity hedge strategies.
The investable HFRI 400 (U.S.) Event Driven index led strategy gains, returning 3% year-to-date through February, "driven by an uptick in M&A, shareholder activist, and special situations campaigns," noted a release issued in conjunction with the report.
With respect to hedge fund fees, the average industry-wide management fee was an estimated 1.35% in the fourth quarter of 2022, unchanged from the third quarter, while the average incentive fee fell by 2 basis points to 15.99% in the fourth quarter from the third quarter, the release noted.
Both of these estimated fees represented their lowest levels since HFR commenced publishing such estimates in 2008.
For funds launched in fourth quarter of 2022, average management fees declined by 17 basis points to an estimated 1.18% from the third quarter.
For all funds launched in 2022, the estimated management fee remained steady over 2021, edging up by just one basis point to 1.34%.
The average incentive fee for funds launched in fourth quarter of 2022 was an estimated 17.68%, up from an estimated 17.23% in the third quarter. For all funds launched in 2022, the average incentive fee increased to 17.74% from an estimated 16.57% in 2021.
"Hedge funds navigated an acceleration of the volatility to conclude 2022, with intense risk-on and risk-off market cycles punctuating a year dominated by increased risk of economic recession as a result of a sharp increase in interest rates necessary to tame generational inflation," said stated Kenneth J. Heinz, president of HFR, in the release. "The increase in launches and steady level of liquidations indicates institutions are increasing commitment to hedge funds."
However, Mr. Heinz added that despite the increase in launches in the fourth quarter, the overall number of launches for the full year of 2022 "remain near historical lows, and increased sensitivity to financial risk by institutions as a result of bank failures may contribute to a continuing challenging launch environment to begin 2023, despite strong performance" through the first quarter of this year.
