Data from Preqin’s Hedge Fund Analyst shows that the start of 2014 was a healthy period for new fund launches, with 153 funds (281 including related funds and share classes) starting out in Q1 2014, compared with 152 launches in Q4 2013. North America continued to act as the base of operations for the majority of new fund launches in Q1 2014, with 73% of new funds being run by North America-based managers, up from 64% in Q3 2013 and 67% in Q4 2013. Conversely, Europe and Asia-Pacific regions saw a decrease in their share of fund launches, with proportions falling from 19% to 17% and 13% to 9% respectively. The drop in Europe-based fund launches shows that the market still has not settled following the introduction of the AIFMD.
With regards to the strategies employed by new funds in Q1 2014, 53% focus on long/short strategies, an increase of 10 percentage points from the previous quarter. This reshuffling of strategies can be attributed to a decrease in the proportion of funds implementing macro strategies, which fell from 26% of all fund launches in Q3 2013 to 16% in Q1 2014. The slowdown in macro fund launches is unsurprising, considering that 2013 was another year in which performance was below expectations. From Q4 2013 to Q1 2014, the proportion of new launches using event driven strategies fell from 10% to 9% and relative value strategies increased to 8%, up from 7%. Equity market neutral and statistical arbitrage strategies were the most popular within the relative value umbrella, with these strategies accounting for approximately 6.5% of all new funds in Q1.
The proportion of new funds using a fund of hedge funds model rose from 10% in Q4 2013 to 12% in Q1 2014. On the other hand, UCITS-compliant funds constituted only 8% of fund launches in the first quarter, down from 10% in the final quarter of last year. The standard hedge fund structure made up 74% of fund launches in Q1 2014, up from 73% in Q4 2013. The shifts in structure caused CTAs to lose ground on the other fund types, with only 6% of new launches being classed as a CTA compared with 7% in the previous quarter.
The average management fee for Q1 2014 fund launches was 1.44%, with performance fees averaging 16.94%. Funds launched in the previous quarter carried an average management fee of 1.52% and an average performance fee of 17.3%. These figures indicate that 2014 is set to continue where 2013 left off, by seeing fees fall away from the “2/20” structure that has been so commonly used in the past.
This new fund launch data gives a clear snapshot as to the current trends within the industry, such as the decline in popularity of macro funds and the slight lag in European fund launches due to regulatory influences. Furthermore, there is evidence to suggest that 2014 could be a year of large fund launches. In January, Connecticut-based Lone Pine Capital launched Lone Tamarack, its first hedge fund in more than ten years, with around $2bn in assets. Alumni from other fund managers, such as the team at Shellback Capital, have also launched funds in the first quarter. Former employees at the now defunct Vinik Asset Management founded Shellback in Q3 2013 and launched their first fund on January 1 with around $425mn in assets. This shows that there is a strong capital raising environment for firms looking to set up shop in 2014.