The number of new hedge fund managers reached a peak during 2011, with a total of 218 firm launches. 2012 almost equalled this high, with 215 fund managers setting up shop in that year. As these managers launch their first funds and more of these fund groups become visible, we could expect the final 2012 tally to surpass that of 2011.
As we approach the end of August, Preqin’s Hedge Fund Analyst has tracked 127 newly established hedge fund managers already this year. Assuming an equal rate of new launches, this would mean at the end of the year there could be approximately 170 new fund groups having come into the market over 2013. However, with some firms only becoming visible several months after inception, we’d certainly expect to see this approach the 200-220 mark when all the final data is collected. The peak in the numbers of new fund management groups coming into the market can be attributed to a number of proprietary desk spin-offs from investment banks, which have launched hedge funds following the implementation of the Volcker Rule, as well as some significant fund launches created by spin-outs from existing hedge funds over the past few years.
However, the increasing number of hedge fund managers entering the market does not correlate with the decreasing number of hedge fund launches in recent years. Whereas 2010 witnessed a record number of fund launches, with 1,000 new funds coming to market, there has been a gradual decline year on year since this time. In 2011 and 2012, 965 and 849 hedge funds were launched respectively. Only 356 new hedge funds have been launched in 2013 so far; if the low level of fund launches continues throughout 2013 this could represent the smallest number of new launches since the mid-2000s. While there has been a rise in new firm launches, a number have not yet marketed their debut vehicles and are still in the “founding” stages of hiring staff and service providers and fine tuning and back testing strategy, before opening a fund to external investment. So far in 2013 just 46% of newly formed fund management groups have launched a vehicle.
The vast majority of new firm launches have occurred across the North American region (76%). However, only 8% of new hedge fund managers entering the market in 2013 are based in Europe, compared to 18% in 2012 and 22% in 2011. Much of the decline in the number of launches in Europe can be attributed to the new Alternative Investment Fund Manager Directive (AIFMD) which was written into law on 22nd July 2013. Many managers have delayed formalizing new businesses in order to see what impact the full implications of the directive will have on a prospective operation; now this has been finalized and local jurisdictions are finalizing their guidelines we could see an uptick in fund launches in the EU in the latter part of 2013.
Changes in global regulations have led to an increase in the number of hedge fund managers embarking upon new ventures. With the AIFMD recently finalized and written into law, we could see an increase in activity in Europe as well towards the end of 2013. However, there appears to be a more cautious attitude from hedge fund managers – many are not opening funds to outside investors until they have established a track record and have a greater chance of raising capital. As a result we have witnessed fewer new funds coming into the market over the past few years. If the current rate of new funds launched continues, we could see the lowest level of activity since 2005.