The pace of hedge fund liquidations continued to decline in the second quarter of 2009 from the record levels set in 2008, according to data from Hedge Fund Research. 

The second quarter saw 292 funds liquidate, a 22 per cent decrease from the 376 funds liquidated in Q1 2009.  The fund attrition rate for the quarter was 3.22 per cent, compared to 4.05 per cent in the previous quarter.  After a record-setting 1,471 liquidations in 2008, first half 2009 closures stand at 668.

The number of funds of hedge funds liquidations also fell but more slowly: in the quarter, 123 funds of funds closed, compared to nearly 200 in Q1.  This represents an attrition rate of 5.04 per cent for funds of funds, nearly double that of single-manager hedge fund closures in Q2, but lower than the 8.16 per cent rate at which fund of funds liquidated in Q1.

The number of fund launches rose to 182 in 2Q 2009, compared to 148 the previous quarter, suggesting an improving environment for both performance and risk appetite.  However, the 330 new funds launched in the first-half of 2009 represent a 32 per cent decrease in launches from the same period a year ago.

Average incentive fees charged by single-manager funds declined for the third  consecutive quarter, down to 19.18 per cent. The average incentive fee stood as high as 19.34 in Q1 2008. Additionally, average management fees for single-manager funds remained at 1.57 per cent in 2Q, while the average fund of funds lowered its management fee by one basis point, down to 1.24 per cent.

Kenneth Heinz, president of Hedge Fund Research, said: “Performance gains for 2009 have been the strongest since 1999, but investors are making demands for greater transparency and structural improvement, setting the stage for the next period of industry expansion.”