Hedge fund launches increase in Q4 as liquidations slow

Hedge fund launches increased to 175 in the fourth quarter of 2020 after eight quarters of contraction, according to data from a Hedge Fund Research report released Thursday.

By comparison, 151 new hedge funds opened in third quarter of 2020.

The fourth-quarter hedge fund launch rate was the highest since the fourth quarter of 2017 when 190 hedge funds were started, HFR data showed.

A total of 151 hedge funds were liquidated in fourth quarter, higher than the 137 that closed in third quarter of 2020, but lower than the most recent high-closure rate of 178 in the second quarter of 2020.

Hedge fund launches in the year ended Dec. 31 totaled 539 compared with 480 in 2019, and there were 770 terminations in all of 2020 vs. 738 the prior year.

HFR researchers credited "optimism regarding the U.S. economic reopening and rising expectations for growth" for the increase in new hedge fund launches and predicted that 2020 launch trends "are poised to continue into 2021," in a news release accompanying the report.

Kenneth J. Heinz, HFR's president, said in the news release that "having navigated extreme dislocations and volatility in 2020, hedge funds are maintaining an intense focus on … new strains of the coronavirus as well as vaccination progress, while at the same time focusing on … risks for 2021, including increasing inflation expectations and geopolitical tensions across North America, Europe and Asia. Managers positioned for these powerful trends are likely to lead to industry performance and growth."