The trend reverses from the first half of 2019.

New hedge fund launches declined in the third quarter, according to HFR. This news reverses the trend of the first half of the year. The number of launches fell to its lowest level since the fourth quarter of 2008.

Launches totaled an estimated 102 in Q3.

That figure brings the YTD total to 391 new funds, according to the latest HFR Market Microstructure Report.

“New fund launches fell in 3Q19 as global equity markets temporarily paused strong YTD performance, with the launch decline reversing a trend of launch increases in the first half of the year. Following the 3Q decline in risk tolerance, risk-on behavior has reasserted itself into 4Q as volatility associated with certain components of trade negotiations, Brexit and political uncertainty has subsided driving U.S. equities to record highs,” said Kenneth J. Heinz, President of HFR.

New Hedge Fund Launches Dip in Q3

The YTD launch total puts the industry on pace to fall below 500 new launches for 2019. That figure would represent the lowest annual total for new funds since 328 in 2000.

That said, European-located funds led launches not only in Q3, but extended a trend observed so far throughout 2019. In the quarter, 76 of the 102 launches came from European-located firms. Meanwhile, for the year, 285 of the 391 launches (73%) originated in Europe.

Overall fund liquidations declined sharply from the prior quarter.

According to HFR, 141 funds closed their doors in Q3.

That figure is lower than the 186 liquidations in Q2 and the 174 liquidations in Q3 2018.

For the year, 540 funds have liquidated.

The third quarter of 2019 represented the fifth consecutive quarter in which liquidations exceeded launches.

HFR: Fees Are Dropping

Average hedge fund management fees industry-wide remained at the lowest level since HFR began publishing estimates in 2008. Meanwhile, the average incentive fee fell slightly from the prior quarter. The average management fee fell by 1 basis point to an estimated 1.39%.

The average incentive fee also fell by 10 bps to 16.4%.

The estimated average management fee for funds launched in Q3 was 1.26%. That figure is in line with the prior quarter average of 1.25 % and the YTD average of 1.23%.

The average incentive fee for funds launched in Q3 was 16.63%. That figure was an increase of +98 basis points over the prior quarter. Still, it remained below the YTD launch average incentive fee of 17.05%.

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