Early 2024 saw a significant increase in hedge fund launches, pushing industry assets to an all-time high of $4.3 trillion due to escalating geopolitical risks, as detailed in the latest HFR Market Microstructure Report.
In the first quarter of 2024, 146 new hedge funds were introduced, marking a 70% rise from the previous quarter and the highest number since the first quarter of 2022. This uptick follows a strong 2023, which saw the launch of 438 new funds. Meanwhile, hedge fund closures remained steady, with 106 liquidations in Q1 2024, comparable to 104 in the prior quarter. For the full year 2023, 415 funds closed, the fewest since 2004.
Equity hedge funds dominated the new launches in Q1 2024, with 75 new funds, driven by robust performance in tech markets. The HFRI Asset Weighted Composite Index® rose 5.7% year-to-date through May, and the HFRI Fund Weighted Composite increased by 5.2%, reflecting large funds' better performance compared to smaller ones. Macro strategies also performed well, with the HFRI Macro (Total) Index gaining 6.9% and the HFRI Macro (Asset Weighted) Index up 7.8%.
Quantitative, trend-following CTA strategies contributed to macro gains, with the HFRI Macro: Systematic Diversified Index rising 9.5% year-to-date. The HFRI Equity Hedge (Total) Index grew 6.0% year-to-date, led by the HFRI EH: Quantitative Directional Index (up 8.8%) and the HFRI EH: Energy/Basic Materials Index (up 7.9%).
The performance dispersion for the HFRI Fund Weighted Composite Index® (FWC) slightly narrowed in Q1 2024, with a top/bottom decile spread of 25.2%, compared to 29.5% in Q4 2023.
Hedge fund fees reached historic lows as managers aimed for capital growth and institutional investments. Average management fees remained at 1.35%, while incentive fees dropped to 15.96%. For new funds in Q1 2024, average management fees were 1.17%, with incentive fees at 17.17%.
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