Launches of new hedge funds in the third quarter exceeded liquidations for the first time in over two years.
New launches totaled an estimated 151 in the three months ended Sept. 30 while liquidations for the quarter totaled an estimated 137, said Hedge Fund Research in an update.
Launch activity was up from an estimated 129 launches in the second quarter. Launches for the year ended Sept. 30 totaled an estimated 364, according to HFR.
The 137 liquidations fell from an estimated 178 in the second quarter. For the year ended Sept. 30, there were an estimated 619 hedge funds liquidated, with 304 of those coming in a first quarter devastated by COVID-19 pandemic-related volatility.
It is the first time that launches exceeded liquidations since the second quarter of 2018, according to HFR data.
Performance dispersion leveled off slightly in the third quarter after an extraordinary surge in the prior quarter, with the average performance of the top- and bottom-decile hedge funds both rising in the three months ended Sept. 30.
The top decile gained 21.5% in the third quarter (compared to 41.4% in the second quarter), while bottom-decile hedge fund returns were -8.8% on average (compared to -9.3% the prior quarter).
“After posting strong gains through the tumultuous 2020, investors are actively increasing exposure to hedge funds, including cryptocurrency strategies, and are positioning for growth in capital and new launches in 2021,” said Kenneth J. Heinz, HFR president, in a statement accompanying the data.
“Macroeconomic and geopolitical risks have shifted heading into 2021, with near term focus on the resolution of U.S. congressional elections, the incoming presidential administration, the economic impacts of U.K./European trade relations and the efficacy of vaccination programs globally,” Mr. Heinz said. “Hedge funds have successfully navigated extreme dislocations throughout 2020 and, as a result of this, are likely to continue attracting institutional investors as a portfolio mechanism to reduce overall volatility and direct equity and interest rate beta, while opportunistically positioning for elevated levels of volatility across asset classes into 2021.”
