The hedge fund industry is experiencing a significant slowdown in new launches, reaching a 24-year low in 2024. According to Preqin, a leading hedge fund research firm, only 123 new funds were launched in the first three quarters of this year. This marks the lowest number since at least 2000 when 191 new funds debuted. This trend reflects the challenging fundraising environment faced by hedge fund managers globally.
Table Content:
A Decline in New Hedge Fund Launches
Preqin’s data highlights a dramatic decline from the peak of 697 new hedge fund launches in 2017. The majority of new funds launched in 2024 focus on equity trading strategies. This significant drop underscores the difficulties managers face in attracting capital.
Fundraising Challenges and Regulatory Shifts
Several factors contribute to the decline in new hedge fund launches. Preqin cites tougher fundraising conditions in the U.S. and Europe as primary reasons. Increased regulatory scrutiny in China also plays a role, making it more difficult for managers to operate and attract investors.
A November survey conducted by Preqin revealed that 40% of hedge fund managers found fundraising more challenging in 2024 compared to 2023. Another 40% reported no change in fundraising difficulty, indicating a persistent struggle to secure capital.
Growth in Niche and Multi-Strategy Funds
While overall launches declined, niche hedge fund strategies, such as insurance-linked securities and cryptocurrencies, experienced substantial growth. The number of these specialized funds more than doubled in the past five years, rising from 730 in 2019 to 1,570 in 2024.
Multi-strategy funds also showed consistent growth, with a 4% annual increase since 2017. This suggests investor interest in diversified approaches within the hedge fund space.
Fund Closures and Asset Growth
Fund closures also reached a decade low in the first nine months of 2024. This, coupled with the decrease in new launches, suggests a consolidation within the hedge fund industry.
Despite the challenges in launching new funds, the industry’s overall Assets Under Management (AUM) continued to grow. This growth is primarily attributed to strong hedge fund performance in 2024. It’s important to note that AUM includes leverage and investor capital, in addition to investment gains.
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Investor Flows and Performance
While net cash distributions to investors totaled $8.4 billion in the 12 months ending in September, hedge funds attracted $25.5 billion in new investor capital during the third quarter of 2024. This positive net inflow indicates continued investor confidence in the hedge fund industry despite the challenging fundraising environment. Preqin reports an average industry return of 10% through September 2024, further supporting the appeal of hedge fund investments.
Conclusion: Navigating a Shifting Landscape
The decline in new hedge fund launches reflects a complex interplay of fundraising challenges, regulatory changes, and evolving investor preferences. While the industry faces headwinds, the growth in niche strategies, multi-strategy funds, and overall AUM demonstrates resilience and adaptability. Strong performance in 2024 continues to attract investor capital, positioning the hedge fund industry for ongoing evolution and consolidation.
