New York (HedgeCo.net) – Hedge fund industry marketing and consulting firm Agecroft Partners issued its sixth annual list of trends in the industry and the biggest trend was more closures in 2016. Managing partner Don Steinbrugge put together the list and he cited four reasons for the closures:

1. “The current number of hedge funds is near an all-time high of 15,000. Given a consistent rate for hedge funds ceasing operations, hedge fund closures should also be at an all-time high.”

2. “This increase in the number of hedge fund managers has reduced the average quality of hedge funds in the industry. Many of the lower quality managers will experience a higher rate of closing down, which is good for the industry.”

3. “Increased volatility in the capital markets increases the divergence in overall return between good and bad managers. This in turn increases the turnover of managers, as bad managers get fired and money is reallocated to those who outperform.”

4. “The competitive landscape for small and mid-size managers is becoming increasingly difficult. They are being squeezed from both the expense and revenue side of their businesses. As discussed earlier in this article, having a superior quality product alone is not enough to generate inflows of capital. As a result, we expect the closure rate to rise for small and mid-sized hedge funds.”

After the high number of closures in 2015, this is not necessarily what the industry wants to hear, but a thinning of the herd could be good for the industry over time.

Rick Pendergraft
Research Analyst
HedgeCoVest