The recent market volatility that has been top of mind for retail investors, politicians, and Wall Street mainstays hit hedge funds hard, according to a new report from Hedge Fund Research.
"Financial market volatility accelerated through the third quarter and into year-end on ongoing trade and tariff negotiations, contributing to decreased investor risk tolerance and an increase in fund liquidations," HFR President Kenneth Heinz said.
Hedge funds, on aggregate, were down 3.1% in October 2018 and down 2% through the first 11 months of the year. Prominent investors including John Paulson, Jason Karp, Dmitry Balyasny, and Dan Och all returned money to investors after shuttering funds last year.
For the first time since the second quarter of 2017, hedge-fund liquidations outpaced launches in the third quarter of 2018, 174 to 144. The 174 liquidations dwarfed the second quarter's 125 closures, but the number of launches was essentially unchanged quarter over quarter.
These launches have been catering to the new industry reality, with many hedge-fund startups pushing down their fees to entice investors.
HFR's report said "average hedge fund management fees remained at the lowest level since HFR began publishing these estimates in 2008" at 1.43%, while the average incentive fee is at its lowest level ever, 16.93%. New funds launched through the first three quarters of last year have had an average management fee of 1.3% — 13 basis points lower than the industry average.
The average incentive fee of newly launched funds, however, is above average at 17.58%.
The report put industry assets at $3.2 trillion as of the end of the third quarter, with $11.1 billion of net outflows from hedge funds through the first nine months of the year.
