Preliminary data shows that 802 single-manager hedge funds were launched globally in 2014, according to Preqin’s Hedge Fund Analyst database. Despite falling short of the heights of 2011 (1,184 launches) and 2012 (1,180 launches), this figure demonstrates a healthy marketplace for hedge fund launches more broadly. Here, we use data published in the newly released 2015 Preqin Global Hedge Fund Report to examine the breakdown of hedge fund launches in 2014 by strategy, and determine what strategies hedge fund managers launched in 2014 compared to previous years.
The chart shows that equity strategies funds have consistently made up the largest proportion of fund launches year after year. In 2014, they accounted for 47% of all fund launches, a proportion not seen since 2004 (47%). Within this, long/short equity is the most recognizable hedge fund strategy in the industry, with a high proportion of investors issuing searches for this type of strategy over H2 2014.
By contrast, hedge fund launches utilizing macro strategies have declined eight percentage points in the proportion of launches from 2013 to 2014. The Preqin All-Macro Strategies benchmark showed some improvements in performance, particularly during the middle part of 2014, but the strategy was unable to offset the returns of hedge funds focusing on commodities, which was in the red at the end of the year (-7.13%). A number of high profile managers, including Anderson Global Macro based in New York, were forced to liquidate funds amid losses caused by large spikes and subsequent reversals in levels of volatility.
Funds employing a multi-strategy approach also exhibited low launch numbers in 2014 compared to previous years. Such funds have been on a downward trend since 2005; in 2014, just 5% of all new fund launches were multi-strategy funds. Investors increasingly appear to be streamlining their hedge fund portfolios to include clearly defined strategies with specific risk/return targets. This has led to an increase in appetite for single-strategy funds and a fall in demand for those utilizing a multi-strategy investment approach.
Overall, 2014 can be seen as a year in which hedge fund launches remained healthy and equity-related strategies were in demand. It remains to be seen whether the weak performance of macro strategies funds and multi-strategy vehicles in 2014 will deter managers from launching these types of funds in 2015 in favour of equity strategies funds. Should market sentiment change, we may see the demand for equity-related funds adjust accordingly in favour of other strategies such as macro and credit types, which are favoured for their low correlation with equity markets.