Hedge funds are riding the wave of accelerated industry growth as the strategic focus turns to aggressive expansion in multi-strategy inflation trading.
The first half of 2023 saw the number of new hedge fund launches rise to 226, a surge dominated by multi-strategy funds ready to engage with rising rates and generational inflation, reports HFR®, a leading global figure in hedge fund industry analysis.
The second quarter of the year alone witnessed 133 new hedge fund introductions, reflecting a stark increase in fixed income-based relative value arbitrage, mainly consisting of credit multi-strategy funds. Specifically, this quarter’s launch count increased to an estimated 51 from 13 in the prior quarter.
For the first time since the first quarter of 2022, new hedge fund launches outpaced liquidations. In the run-up to mid-2023, around 109 hedge funds reportedly closed — a slight rise from the preceding quarter’s 102. The past year, ending in 2Q23, saw 393 new funds, whilst 500 were liquidated.
Performance metrics have shown promising results, with the HFRI fund weighted composite index (FWC) seeing a 4.5% year-to-date increase through August. This was primarily propelled by equity hedge and event-driven strategies, with relative value arbitrage also contributing.
Hedge fund fees have seen a rise in mid-2023, not just due to solid performance and capital influx but also because of limited capacities in established firms and elevated costs linked to expanding inflation portfolio teams. The industry’s average management fee remained steady at 1.36%, but there was a notable hike in the incentive fee, which touched 16.19%.
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