New data suggests that while total assets have risen, investors ran out of patience with hedge funds last year, with liquidations rising to the highest level since 2008.

The global hedge fund sector may have surpassed a $3 trillion milestone recently but more of these funds were liquidated in the final three months of 2016 than in previous quarters, making last year the heaviest for shut-downs since the financial crisis year of 2008.

According to Hedge Fund Research, the Chicago-headquartered organisation, liquidations increased to 275 in the quarter, rising from 252 in the prior quarter, though falling from the 305 funds liquidated in the same quarter of 2015.

For the full year of 2016, liquidations totalled 1,057, surpassing the 1,023 liquidations from 2009, though falling well short of the record of 1,471 liquidations in 2008. As previously reported by HFR, total hedge fund industry capital increased to a record of $3.02 trillion to end 2016, surpassing the previous record of $2.97 trillion from the prior quarter. The total number of hedge funds, including fund of hedge funds, declined to 9,803.

The figures suggest there is an increasing concentration of capital in the largest funds, while investors may also, after years of relatively modest returns from the sector, be running out of patience. A few weeks ago, legendary investor Warren Buffett mused in his annual letter to investors as to whether the sector can go on justifying its relatively high fees when set against those charged by low-fee tracker funds.

New launches totalled 153 in the fourth quarter of 2016, down from 170 in the prior quarter and 183 in the fourth quarter of 2015. The number of launches in the fourth quarter represents the lowest quarterly total since the first three months of 2009 and marks the fifth consecutive quarter of net contraction in the overall number of funds. New launches totaled 729 in 2016, a steep decline from the 968 launches in 2015.

HFR found that the average hedge fund management fee fell to 1.48 per cent in the fourth quarter, a decline of one basis point, while the average incentive fee fell 10 basis points to 17.4 per cent. The average management fee for funds launched in 2016 fell to 1.33 per cent, declining from 1.6 per cent for 2015 launches. The average incentive fee for funds launched in 2016 declined to 17.71 per cent, down 4 basis points from 2015 fund launches.

"Hedge fund liquidations in 2016 surpassed the post-financial crisis peak despite total industry capital surpassing the $3 trillion milestone, underscoring the shifting investor risk tolerance and steadily increasing concentration of investor capital in mid-to-large hedge fund firms,” Kenneth Heinz, president of HFR, said.