HFR finds lackluster hedge fund startup pace in 3rd quarter

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Kenneth J. Heinz

The 231 hedge fund launches in the quarter ended Sept. 30 represented the lowest volume of startups over a three-month period since the fourth quarter of 2010, when hedge fund launches totaled 220, according to new research from Hedge Fund Research.

The third-quarter total also is significantly down from the 288 funds that opened in the previous quarter, according to HFR's most recent Market Microstructure Industry report.

But at a total of 813 new hedge fund launches year-to-date Sept. 30, the industry might be on track to match the 1,108 new funds that debuted in 2012, HFR researchers said in the report.

HFR President Kenneth J. Heinz blamed the low startup level in the third quarter on nervousness about the release of the Volcker Rule, which was finalized on Tuesday. The new rule restricts proprietary trading by banks and other financial institutions and restricts ownership of hedge fund managers by those institutions.

“The increased uncertainty has likely adversely impacted hedge fund launches in the short term,” Mr. Heinz said in the report. But over the long term, “the adoption of the rule is likely to result in increased hedge fund launches as experienced investment professionals set up new funds,” he added.

HFR also reported 222 hedge fund liquidations in the quarter, up from 190 liquidations in the prior quarter. The third-quarter total was the highest since 238 funds closed in the fourth quarter of 2012, the HFR report said.