The global hedge fund industry generated more new funds, with fewer shut-downs and liquidations, than at any point since 2017, aided by the kind of market gyrations that can play to the sector's strengths.

New hedge fund launches have risen to the highest level since 2017 and total industry capital has held above the $4 trillion mark, according to figures from Hedge Fund Research.

Chicago-based HFR said that an estimated 614 new funds were launched last year, the highest calendar year total since 2017 when 735 new funds were launched.

Such figures suggest that for all the drawbacks some strategies suffered a decade ago and in the immediate years following when stock markets rose, the disruptions and market swings of 2020 and 2021 have played to hedge funds’ strengths.

An estimated 527 funds were liquidated in 2021, the lowest total since 2004 when 296 funds liquidated. Over that time, total industry capital has risen to more than $4 trillion from $973 billion.

After producing a 9.9 per cent return in 2021, the investible HFRI 500 Index contrasted with large equity market losses with a narrow decline of 1.2 per cent through February. 

Uncorrelated macro strategies have led performance thus far in 2022, advancing 3.8 per cent through February, with strong gains across fundamental discretionary, commodity and systematic trend-following strategies.

Hedge fund fees held steady in 2021, as the average industry-wide management fee decreased by one basis point from 1.37 per cent to 1.36 per cent over the year, while the average incentive fee declined from 16.35 per cent to 16.1 per cent in 2021. Both estimated fees represent the lowest level since HFR began publishing these estimates in 2008. 

“Strong growth trends continue to be driven by rising geopolitical and macroeconomic uncertainty, with institutional investors positioning for this uncertainty and looking for portfolio capital protections. These concerns from the prior year have only been increased by the early 2022 volatility and expectations for significant interest rate increases,” Kenneth J Heinz, president of HFR, said.