Hedge fund launches down in Q1 amid coronavirus pandemic

Launches of new hedge funds in the first quarter fell to the lowest level since the global financial crisis, amid the coronavirus-induced lockdowns and market volatility.

New launches totaled an estimated 84 in the three months ended March 31, said Hedge Fund Research in an update. That is the lowest quarterly estimate since the fourth quarter of 2008, when 56 hedge funds were launched.

For the fourth quarter of 2019, launches totaled an estimated 89, bringing full-year 2019 launches to 480, the data showed. For the first quarter of 2019, launches totaled 136.

Liquidations of hedge funds in the first quarter increased to an estimated 304, the highest level since the fourth quarter of 2015, when liquidations totaled 305. For the fourth quarter of 2019, liquidations totaled 198, bringing 2019 full-year liquidations to an estimated total of 738.

HFR noted that the first-quarter launch and liquidation estimates represent the seventh consecutive quarter in which liquidations outpaced launches.

Performance dispersion widened in the first quarter, although the average performance of the top and bottom decile hedge funds fell as the COVID-19 pandemic began to grip markets.

The top decile of funds gained 15.5% in the three months ended March 31, while bottom-decile hedge fund returns were -40.7% on average.

In the fourth quarter of 2019, the top-decile funds gained 16.8%, while the bottom-decile returns were -6.5%.

"New fund launches fell to historic lows in 1Q20 as the coronavirus pandemic drove steep losses across global financial markets, despite strong outperformance of the HFRI throughout the pandemic volatility," Kenneth J. Heinz, president of HFR, said in a statement accompanying the data. "While the launch environment to begin 2020 has been extremely challenging as direct result of the drop in investor risk tolerance, institutional allocators which had reduced, eliminated, or failed to implement hedge funds or other risk-reducing alternative allocations were subjected to higher levels of portfolio volatility."