Hedge-fund liquidations rose to a three-year high in 2012 as the European debt crisis and concerns about global economic growth hurt performance for the $2.3 trillion industry, according to Hedge Fund Research Inc.
The number of firms shut jumped to 873, the most since 2009, the Chicago-based data provider said in a statement today. Still, the net number of hedge funds increased after money managers started 1,108 firms last year, it said.
Smaller hedge funds have been hardest hit by the global financial turmoil that has made it more difficult to raise money from investors since the collapse of Lehman Brothers Holdings Inc. in 2008. Hedge funds managing more than $5 billion got 65 percent of the $3.4 billion of assets that flowed into the industry in last year’s fourth quarter while firms with less than $1 billion reaped 8.7 percent, Hedge Fund Research said.
“The capital-raising environment continued to be challenging for emerging managers, including both small and mid- sized funds, as well as newly launched funds,” Kenneth Heinz, Hedge Fund Research’s president, said in the statement. “To raise new investor capital, hedge funds must not only demonstrate both superior performance and an innovative strategy, but also increased organizational efficiencies.”
Hedge funds have historically charged investors a 2 percent fee to manage assets, while keeping 20 percent of any investment gains. Average industry management fees declined 1 basis point last year to 1.56 percent, while performance fees fell 17 basis points to 18.54 percent, Hedge Fund Research said.
More than a third of hedge funds that shut in 2012 invested in stocks, after the returns of equity-focused hedge funds on average failed to beat the Standard & Poor’s 500 Index for a third straight year. Equity hedge funds rose 8 percent from 2009 through 2012, trailing the 36 percent gain for the S&P with dividends reinvested, data compiled by Bloomberg show.
The 238 hedge fund liquidations in the fourth quarter of 2012 was the highest over a quarterly period since 240 closed in the first three months of 2010, Hedge Fund Research said.