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Investors blame industry size for hedge fund underperformance

A bleak future?

The headwinds the hedge fund industry is suffering will still have some important repercussions though, Barclays expects. First, it seems there is little fresh blood coming into the industry. ‘Based on ongoing conversations with managers, investors and external research’, Barclays expects new fund launches in 2016 to decline from 12-13% to about 8% of the total number of hedge funds. Liquidations are set to rise to 12%, meaning that for the first time since 2009 the number of hedge funds is set to decline.

This could well be a trend, as Barclays’ research suggests hedge funds’ investor base might be ageing: only 12% of the investors who took part in Barclays’ research invest in hedge funds for less than 5 years, while two thirds are invested for a period of more than ten years.

To attract new investors, hedge funds might just have no choice but to lower their fees. As one of the investors polled by Barclays noted: “Fees are too high relative to risk-free rates and return expectations.” In 2008, the Fed funds rate was above 5%, while it is at 0.5% now. In the meantime, hedge fund fees have barely changed.   

Part of the Mark Allen Group.