New hedge fund launches surged in the first quarter of 2024, with 146 new funds starting, a 70% increase from the previous quarter and the highest since Q1 2022, according to hedge fund research firm HFR.
The strong start followed a steady 2023, which saw 438 new fund launches. Meanwhile, hedge fund liquidations remained stable, with 106 closures in Q1 2024, slightly up from 104 in the previous quarter. For the full year 2023, 415 funds liquidated, marking the lowest level of liquidations since 2004.
The surge in new launches was led by equity Hedge funds, with 75 new funds representing over half of the Q1 launches. Equity Hedge funds are expanding, driven by gains in technology-focused equity markets, despite these gains being concentrated in large-cap equities.
May saw hedge fund inflows surge, data shows
The HFRI Asset Weighted Composite Index® (AWC) gained 5.7% year-to-date (YTD) through May, while the HFRI Fund Weighted Composite advanced 5.2%, with large funds outperforming smaller ones. Macro strategies led YTD performance, with the HFRI Macro (Total) Index up 6.9% and the HFRI Macro (Asset Weighted) Index surging 7.8%. Quantitative, trend-following CTA strategies drove these gains, with the HFRI Macro: Systematic Diversified Index up 9.5% YTD through May. Equity Hedge strategies also performed well, with the HFRI Equity Hedge (Total) Index up 6.0%, led by the HFRI EH: Quantitative Directional Index and the HFRI EH: Energy/Basic Materials Index.
Performance dispersion in the HFRI Fund Weighted Composite Index® (FWC) decreased slightly in Q1 2024. The top decile of index constituents returned an average of 19.4%, while the bottom decile declined by 5.8%, showing a dispersion of 25.2%, down from 29.5% in Q4 2023. Over the trailing 12 months ending March 2024, the top decile returned an average of 43.3%, while the bottom decile declined by 11.9%, representing a dispersion of 55.2%.
Hedge fund fees reached historic lows at the start of 2024. The average management fee remained at 1.35%, while the average incentive fee dropped to 15.96%. For new funds launched in Q1 2024, the average management fee was 1.17%, and the average incentive fee was 17.17%, as managers positioned for capital growth and institutional inflows throughout the year.
Kenneth J. Heinz, president of HFR, said: “Managers continued to position for ongoing geopolitical risk driven by ongoing European elections and upcoming US elections, anticipating significant policy shifts and trade impacts, though these risks also include ongoing and potential new military conflicts, with these risks likely to increase throughout 2024. The powerful combination of strong performance, specialized exposures, and capital preservation are likely to drive industry growth throughout 2024.”
