The current number of hedge funds is near 15,000. Given a consistent rate for hedge funds ceasing operations, hedge fund closures are the highest now.
“This increase in the number of hedge fund managers has reduced the average quality of hedge funds in the industry. Many of the lower quality managers will experience a higher rate of closing down, which is good for the industry.”
“Increased volatility in the capital markets increases the divergence in overall return between good and bad managers. This in turn increases the turnover of managers, as bad managers get fired and money is reallocated to those who outperform.”
“The competitive landscape for small and mid-size managers is becoming increasingly difficult. They are being squeezed from both the expense and revenue side of their businesses. As discussed earlier in this article, having a superior quality product alone is not enough to generate inflows of capital. As a result, we expect the closure rate to rise for small and mid-sized hedge funds.”
Hedge funds performed dismally in 2015. The average fund fell 3.49%, according to Hedge Fund Research.
There were also numerous closings in 2015. About 257 hedge funds closed in the third quarter, according to Hedge Fund Research. That’s up from 200 in the second quarter, which ended June 30.
That took the number of hedge funds liquidated through the first nine months of the year to 674, up from 661 during the same period in 2014, the report said.
More closings are expected as year-end redemption notices from investors filter in.
London-based Nevsky Capital’s founders have decided to shut down their $1.5 billion hedge fund and retire, saying weak market conditions made it unlikely they could generate the returns they had in the past.
Martin Taylor, 46, one of the firm’s co-founders, told Reuters that Nevsky Capital was returning money to investors due to concerns about the maturing of the U.S. business cycle and the fund’s ability to make money in such an environment.
Taylor is retiring after 21 years in the funds industry, while fellow founder Nick Barnes, 41, is leaving the market after 18 years.
The fund, which buys and sells stocks in emerging and developed markets from an office in London’s Mayfair district, has returned 18.4 percent annually net of fees since it launched in 2000. The average fund has returned 2.5 percent over the same period, according to data from industry tracker HFR.
Nevsky Fund Plc returned 0.4 percent in 2015, Taylor told Reuters, against an average return for all equity funds over the year of minus 2.16 percent, HFR data showed.
The closure follows the December decision by $8 billion BlueCrest Capital Management to return investor money and the closure of $900 million credit hedge fund Lucidus.