A record number of hedge funds — an estimated 1,406 — were launched in 2004, according to new data from Hedge Fund Research. The number compares to 1,156 funds launched in 2003, 1,222 funds in 2002 and just 693 in 2001. The net number of new hedge funds was 1,139, after factoring in the 267 funds that were liquidated last year. The attrition rate in 2004 was 4.24%. The additions and subtractions bring the total number of hedge funds active on Dec. 31 to 7,436, according to HFR's estimates, which are derived from its database of more than 8,000 hedge funds.
Meanwhile, the liquidation rate among the 800 hedge funds in the Hennessee Hedge Fund index remained at 5.3% for 2004, the same as 2003. In fact, the attrition rate for hedge funds with more than $10 million in assets under management that are liquidated has been fairly consistent over time at 3.8% in 2002, 4.3% in 2001, 6.4% in 2000 and 4.7% in 1999, according to company data.
"It has been reported that hedge funds have a 15% failure rate. … Our statistical findings using the Hennessee Hedge Fund (indexes) do not support that," Charles Grandante, managing principal, said in a statement.