A rising number of newly launched hedge funds are employing non-equity-based investment strategies, according to The Seward & Kissel 2016 New Hedge Fund Study, an annual analysis of new hedge funds by the leading law firm to the hedge fund industry. The portion of new hedge funds using non-equity-based strategies increased to 35% in 2016, up from 20% in 2015....MUCH MORE
Introduction and Key Findings
Driven by our ongoing commitment to understanding the dynamics of the hedge fund marketplace and bringing the latest industry color to our clients and friends, each year Seward & Kissel conducts The Seward & Kissel New Hedge Fund Study of newlyformed hedge funds sponsored by new U.S.-based managers entering the market. This Study covers the 2016 hedge fund launches of relevant Seward & Kissel clients meeting the above criteria. We believe that the number of funds within the Study is large enough to extract a representative sample of important data points that are relevant to the hedge fund industry. The Study analyzes investment strategies, incentive allocations/management fees, liquidity and structures, as well as whether any form of founders or seed capital was raised. The Study does not cover managed account structures or “funds of one” that may have a wider variation in their fee arrangements and/or other terms.
The Study’s key findings, set forth in greater detail below, include the following:
- 65% of the funds had equity or equity-related strategies (down from 80% in the 2015 Study).
- With respect to management fees charged in the standard (i.e., non-founders) classes, there was a relative similarity between equity and non-equity strategies, as the average rate was 1.5125% for equity strategies and 1.43% for non-equity strategies.
- Incentive allocation rates in standard classes generally continued to be set at 20% of net profits across all strategies and no funds had a modified high water mark.
- 75% of the equity funds and just 36% of the nonequity funds offered founders classes.
Demonstrating a shift from recent historical trends, only about 65% of the funds included in the Study utilized an equity or equity-related strategy (not including multi-strategy offerings that generally involved both equity-related as well as other strategies). This represents about 15% less than the 2015 Study. Of the remaining 35% of funds in the Study (i.e., the nonequity strategies), about half were multi-strategy, with the rest fairly equally split primarily among credit, quant and structured product strategies....
- 94% of the funds permitted quarterly or more frequent redemptions, while just 6% of the funds allowed only annual redemptions in 2016. Moreover, all of the funds had lock-ups or investor level gates, and about 5% had both.
- Sponsors of both U.S. and offshore funds set up master-feeder structures (as opposed to side-byside structures) over 95% of the time, and utilized the Section 3(c)(7) exemption 75% of the time.
- We estimate, that for calendar year 2016, there were approximately 25-30 seed deals consummated within the industry, which represents about a 25% decline over 2015 deal levels.
Wednesday, March 15, 2017
"Sharp Rise In Hedge Funds Using Non-Equity Strategies"