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Hedge Fund Launches Accelerate To End 2020 Amidst Economic Optimism

New hedge fund launches increased to an estimated 175 in the fourth quarter of 2020 on the back of optimism regarding the U.S. economic reopening and rising expectations for growth, according to new research from HFR. New launches exceeded the estimated quarterly liquidations for the second consecutive quarter, after eight quarters of contraction.

Fund liquidations also increased in the fourth quarter of last year to 151, a slight uptick from the prior quarter but also marking a decline of over 50% from the 304 liquidations in Q1 20.

For the full year 2020, an estimated 538 new funds launched and 770 funds liquidated.

“New hedge fund launches continued to rise as industry expansion accelerated into 2021, driven by the strongest performance gains since 2000, as both managers and investors positioned for strong growth throughout 2021. Volatile trends, including an increase in trading volume from retail investors and a renewed interest in strategies focused on both out of favor, deep value equites, as well as stocks with high short interest, have increased idiosyncratic equity volatility in recent months,” stated Kenneth J. Heinz, President of HFR. “Having navigated extreme dislocations and volatility in 2020, hedge funds are maintaining an intense focus on ongoing new strains of coronavirus as well as vaccination progress, while at the same time focusing on evolved risks for 2021 including interest rate sensitivity, increasing inflation expectations, and geopolitical tensions across North America, Europe and Asia. Managers positioned for these powerful trends are likely to lead industry performance and growth in 2021.”

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