A risk-off mood across global financial markets amid persistent economic turmoil deterred prospective hedge funders from starting up new firms in the second quarter.
The estimated number of new hedge fund launches slid to only 80 in Q2, down sharply from 185 in the first quarter of the year, according to fresh data from indexation and analysis firm Hedge Fund Research. The latest figure also reflects the fewest new funds launched since the fourth quarter of 2008, during the Global Financial Crisis.
Financiers scaled back the opening of new hedge funds even as performance as a whole held up during the period compared to the broader markets.
From the start of this year to the end of August, the HFRI Fund Weighted Composite Index – a global index of the world’s largest hedge funds – fell just 4%, while the benchmark S&P 500 plunged 17% over the same period.
Global macro hedge funds, which benefit from uncertainty caused by political or economic events, were standout performers, gaining most from their long positions in commodities and the U.S. dollar as each asset category benefited from volatility associated with interest rate increases by the Federal Reserve.
The HFRI 500 Macro Index – HFRI 500 Macro Index – which tracks macro-focused strategies across the broader global hedge fund index, jumped 14.3% year-to-date through August, per Hedge Fund Research data.
Still, new launches fell sharply in the second quarter despite that outperformance, HFR President Kenneth J. Heinz said in a statement.
“Risk-off sentiment drove investor risk aversion, with investors maintaining exposures to established funds through the current volatile market paradigm of unprecedented geopolitical and macroeconomic uncertainty,” Heinz said.
In addition to a slowdown in new fund debuts, hedge fund liquidations rose from the prior quarter, with an estimated 156 funds shuttering their operations in Q2, up from 126 in the first quarter.
Among prominent hedge fund closures during the quarter was Melvin Capital – the firm involved in 2021’s GameStop short squeeze – previously known as one of the most successful hedge funds on Wall Street.
Tiger Global Management, one of the world’s largest hedge funds, shed a whopping 63.3% in the second quarter after fees following getting battered by a rout in tech stocks amid rising interest rates.
Meanwhile, in an recent letter to investors, Anne Farlow, chairperson of the board of Bill Ackman’s Pershing Square Holdings (PSH) – which was down 15.2% year-to-date through August 31 – acknowledged, “The first half of 2022 was a challenging time for PSH, for companies and for the financial markets in general, driven in large part by rising inflation, uncertainty around monetary policy, and geopolitical events.”
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