Hedge funds see renewed investor confidence in Q2

Hedge fund industry liquidations returned to pre-financial crisis levels in the second quarter this year, according to data released on Wednesday by Hedge Fund Research, Inc. (HFR), the Chicago-based hedge fund industry data provider.

Led by steady performance, a return of new investor capital and greater clarity around financial reform legislation, hedge fund liquidations fell to 177 in Q2, bringing the total number of fund closures to 417 in the first six months of 2010.

For the quarter, the fund attrition rate, defined as the number of liquidations as a percentage of the overall number of funds, dropped to below two per cent.

“Volatility returned to financial markets in 2Q10 as investors lowered expectations of the global economic recovery,” said Ken Heinz, President of Hedge Fund Research. “Despite this volatility, fewer funds have liquidated recently as a function of steady performance, improved structural integrity and renewed investor confidence in the hedge fund industry,” he said.

Funds of Hedge Funds (FOFs) experienced the fewest number of liquidations (54) since Q1 2008. Since the start of the financial crisis, over 800 FOFs have liquidated, reducing the number of FOFs from nearly 2,600 in mid-2008 to approximately 2,100 as of Q2 this year.

New hedge fund launches also declined in Q2 this year, with only 201 funds launching, the lowest level since Q2 last year. By strategy, equity hedge and macro experienced the greatest number of new launches.

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