The three months to the end of September saw hedge fund launches surge, while equity hedge strategies also drove liquidations up, research reveals.

Hedge fund launches and liquidations were both up in the third quarter of 2015 as energy commodities and equities suffered sharp falls, according to a new report by Hedge Fund Research.

Hedge fund liquidations grew from 200 to 257 during the quarter while the number of hedge fund launches rose from 252 to 269.

The growth in launches came in spite of market volatilities, namely brought on by China’s economic woes. Indeed, equity hedge strategies led both launches and liquidations, with 150 launches and 113 funds shutting down in the quarter.

“Hedge fund liquidations rose in 3Q15 as investor risk tolerance fell sharply, and energy commodities and equities posted sharp declines, resulting in net capital outflows, wider performance dispersion and meaningful differentiation between hedge funds,” said Kenneth Heinz, president of HFR.

There was little change to fees across the hedge fund industry. Management fees remained unchanged from the second quarter and the average incentive fee of hedge funds fell a marginal two basis points to 17.76 per cent.

The dispersion of hedge fund performance in the year to the end of September was evident. The top decile of the HFRI Fund Weighted Composite Index increased by 23.4 per cent, while the bottom decile declined -29 per cent, resulting in a decile dispersion of +52.4 per cent, up from the +46.9 per cent dispersion a year earlier.

“Although recent performance declines have narrowed the HFRI to only a narrow gain for 2015 through November, many hedge funds which have been conservatively and defensively positioned have posted strong gains for investors through this period of financial market stress," Heinz said.  

“Anticipating a challenging environment in 2016, dominated by the headwind of rising US interest rates, it is likely that funds which have demonstrated their value proposition in recent months will continue to attract new investor capital with strong, uncorrelated performance gains in the new year.”