By Susan Barreto
Published by Alternatives Watch, July 2, 2021
Hedge fund launches are on the rise following a dramatic drop off during the pandemic, according to industry experts.
Aaron Steinberg, head of prime services sales and capital introductions at BNY Mellon | Pershing, said in a recent interview with Alternatives Watch that he is seeing more and more sophisticated start-ups than ever before in terms of infrastructure and how they are built and the service providers they use.
In the coming weeks, Pershing plans on releasing results of its latest investor survey. According to Steinberg, the findings will likely show that long/short equity generalists are still in great demand with both TMT and healthcare sector specialists seeing more interest from allocators.
In this second half of 2021, he expects managers and investors will start doing a better job in increasing communication with the help of technology and will likely supplement with in-person meetings with managers as the pandemic wanes.
“Over the last 15 months, the launch environment has been difficult,” Steinberg said. He added that the second quarter of 2020 was the lowest launch environment that the firm has had in 15-plus years and that was purely because of quarantine and everyone working from home.
“We have seen people spin out of big groups that historically would have gotten a lot of money, but they haven’t had that chunk of money come in yet,” he added. In some instances, the firms may have had a soft launch and are still working to hit a predetermined asset threshold.
During the pandemic there were a handful of large launches over the course of the year too. Steinberg sees both investors and managers hitting the reset button over the summer. The expectation is that once September rolls around there will be a handful of sizable launches again.
The pick-up in launches has already begun though, according to HFR. New hedge fund launches increased in the first quarter of 2021 to the highest level since the end of 2017 as hedge funds posted strong returns to begin 2021, the data firm said.
An estimated 189 new hedge fund launches took place in the first quarter of 2021, exceeding the estimated number of liquidations for the third consecutive quarter. The launches follow eight consecutive quarters of contraction as the first quarter saw a 50% decline in fund liquidations too, HFR said.
The HFR indices are also tracking strong gains as the top HFRI decile saw a gain of 126.8% in the trailing 12-month period ending Q1, the highest rolling 12-month top decile average return on record and more than doubling the calendar year 2020 top decile average return of 60.3%.
“Powerful, record performance by the top decile of the HFRI led the recent surge, with a combination of equity hedge and event-driven strategies contributing to overall HFRI gains,” said Kenneth Heinz, president of HFR. “In addition, uncorrelated macro strategies and interest rate-sensitive relative value arbitrage strategies have also advanced, representing important capital preservation as investor attention has shifted toward expectations for higher interest rates and rising inflationary pressures.”
Pershing’s Steinberg also expects to see a proliferation of activity in the second half of the year, which would only lead to more assets in the markets. The hedge funds that have shown they can perform are primed to attract assets, in his view.
BNY Mellon’s Pershing and its affiliates provide a comprehensive network of global financial business solutions to advisors, broker-dealers, family offices, hedge fund and ’40 Act fund managers, registered investment advisor firms and wealth managers. Many of the world’s most sophisticated and successful financial services firms rely on Pershing for clearing and custody; investment, wealth and retirement solutions; technology and enterprise data management; trading services; prime brokerage and business consulting.
Pershing helps clients improve profitability and drive growth, create capacity and efficiency, attract and retain talent, and manage risk and regulation. With a network of offices worldwide, Pershing provides business-to-business solutions to clients representing approximately 7 million investor accounts globally. Pershing LLC (member FINRA, NYSE, SIPC) is a BNY Mellon company.