MarketWatch – A record number of hedge funds launched and liquidated in 2005, suggesting that the industry remains buoyant but increasingly competitive, Hedge Fund Research said Tuesday.
HFR, which tracks hedge-fund performance, said that 2,073 funds started last year, while 848 funds liquidated. That’s up from 1,435 launches and 296 closures in 2004, the firm added.
The attrition rate, which measures the proportion of funds that drop out of HFR’s database as a percentage of the total, was 11.4% in 2005. That’s nearly triple the 4.7% in 2004 and the highest level on record, HFR reported.
Hedge funds historically have been niche private-investment partnerships for wealthy individuals and some institutions. But the industry has ballooned in recent years, and at least 8,000 managers now oversee more than $1 trillion in assets.
That growth has sparked concerns that less-talented managers have moved into the industry, increasing the chances of poor performance and fund closures.
“The data show that this remains an enormously active marketplace, with new funds entering and exiting at a higher rate than ever before,” said Josh Rosenberg, president of HFR, in a statement. “But it is also an unforgiving environment, as the current record level of attrition shows.”
