Hedge Fund Launches Fall to Lowest Level Since 2008

Hedge fund launches have fallen to their lowest level since the financial crisis of 2008, as some managers struggle to make profits in falling markets, and large firms like Millennium and Citadel are taking over traders who may have once branched out on their own, the Financial Times reported.

Global launches fell to 71 in the third quarter of last year, according to the latest available data, down from 132 in the third quarter of 2021, according to data group HFR. This is the lowest level since the last three months of 2008, when 56 new funds were created during the depths of the financial collapse.

– Months following stressful periods like the global financial crisis and the stressful market brought on by the end of quantitative easing have made it a difficult time to launch a new hedge fund – said Donald Pepper, CEO of hedge fund Trium Capital and former Goldman Sachs banker, although he expects improvement this year.

The data comes during a tough period for much of the hedge fund industry worth $3.8 trillion, with many traders having to deal with sharp declines in stock and bond markets from last year, driven by a sudden increase in inflation and a rapid rise in interest rates.

Initial HFR figures show that hedge funds lost 4.4 percent on average last year, with equity managers, including some of the Tiger Cubs (funds that can trace their origins to Tiger Management and Julian Robertson) being heavily impacted by the large sell-off in high-priced technology stocks.

While some parts of the industry have made significant gains, the losses of many funds have not helped attract investors in a difficult fundraising environment. Funds have suffered a total net outflow of $190 billion since the beginning of 2016, according to HFR.

Despite this, there have been a number of notable hedge fund launches in recent years, such as Fifthdelta, launched by former traders from Citadel in 2021, and General Industrial Partners, a new short-selling hedge fund planned by the founders of Gotham City Research and Portsea.

But for many traders, the opportunity to join one of the large multi-manager firms, which employ dozens or even hundreds of different trading teams and often lock up investors’ money for years, is far more attractive than the need to bear the high costs of setting up a new firm out of their own pocket.