2010-09-17 07:47

HONG KONG - Funds of hedge funds closures globally dropped to the lowest level since the first quarter of 2008 in the three months to June, according to Chicago-based industry data provider Hedge Fund Research Inc (HFR).

The number of liquidations of funds that farm out money to hedge funds fell to 54, it said in an e-mailed statement on Thursday.

The global financial crisis led to the closure of more than 800 funds of hedge funds, cutting the total number to 2,100 by June.

Overall hedge fund liquidations fell to the pre-crisis level as fund performances stabilized, investors returned, and clarity over financial reform proposals improved, according to the statement.

"It is indicative of the fact that the industry is recovering from the financial crisis," said Ken Heinz, president of HFR, in an interview with Bloomberg Television on Thursday. "The risk tolerance that investors are continuing to harbor is coming back more slowly but it is coming back."

Altogether, 177 funds shut down in the second quarter, less than a quarter of the number in the last three months of 2008 when closures peaked.

Fund starts also fell to 201 in the three months, the lowest in a year, because investors prefer to allocate money to the most established managers, it said.

Investors allocated almost all of the $23 billion they put into hedge funds during the first half of the year to those that manage more than $5 billion, Hedge Fund Research said.

Such funds account for 60 percent of the industry's assets, the firm said.

The average management fee has declined to close to 1.5 percent of assets, Heinz said in the interview, without giving a historical comparison.

The incentive or performance fees charged by managers now average 19 percent.

"The reality is there's a distribution of fees," he said, adding some managers are now charging 15 percent or even 10 percent in performance fees.

Hedge fund managers have traditionally charged 2 percent of assets in management fees and 20 percent of profit in incentive fees.

Bloomberg News