According to the HFR Market Microstructure Industry Report, the hedge fund industry returned to growth in the first quarter of 2014. The report also highlight that new launches in the Equity Hedge and Event Driven segments were popular with new investors, and that total hedge fund capital increased to a record $2.7 trillion at the end of Q1 2014.
There were a total of 289 new hedge fund launches in the first quarter, a significant uptick from 244 new funds in in 4Q 2013. It was also the highest total since 297 funds launched in 1Q 2013. The report noted there were just 272 hedge fund liquidations in 1Q 2014, a drop off from the 296 closures last quarter, but the second highest quarterly fund closing number since the second quarter of 2009.
Details from Q1 2014 HFR report
The largest number of new hedge funds in the first quarter came in the Equity Hedge segment, and the greatest quarter-over-quarter growth was in Event Driven strategies. This growth was related to growing investor interest in Fundamental Value, Special Situations and Shareholder Activist strategies. Equity Hedge fund launches reached 116 in the first quarter, which also saw the most launches in 2013, representing approximately 40% of launch activity both years. Furthermore, Event Driven launches moved up to 56 for 1Q 2014, representing almost 20% of all launches, after accounting for only 7% of new launches in 2103.
Growth in shareholder activism segment
The HFR report also noted that Shareholder Activism continues to be a growth segment. The total number of funds worldwide focused on Shareholder Activism has increased from 52 to 71 aver the last six years, with these hedge funds collectively managing over $100 billion in investor capital as of 1Q 2014.
1Q 2014 hedge funds performance
Hedge fund performance for the quarter was mixed, with smaller funds generally outperforming larger funds. The HFR report notes, “Performance dispersion narrowed across the industry in 1Q14, with the top decile of hedge funds,as gauged by the HFRI Fund Weighted Composite Index,seeing lower returns, while the bottom decile was essentially unchanged from the prior quarter.”