Carnage at hedge funds as 566 close

HEDGE fund numbers are set to drop this year as investors plough cash into cheaper and more predictable alternatives.

A study by Singapore firm Eurekahedge revealed that fund closures around the world were on track to outpace openings for the first time in more than 16 years.

It said 566 had been shuttered in the first nine months of the year, compared to 518 start-ups.

Hedge funds, which hold billions of UK investors’ cash, have seen the highest levels of investors taking their cash out since the global financial crisis in 2008.

The company put it down to rising complaints about high fees and poor performance.

Head analyst Mohammad Hassan said: ‘Performance is the main issue that’s putting a lot of pressure on existing hedge funds.

‘Many are below their high water marks and are struggling to make money and cover costs.’

The average fund has earned 2.9pc so far this year, after returning 1.7pc in 2015.

Many of those which finished last year in the red have still not made back their losses.

Hassan said investors were increasingly turning to cheaper automatic trading firms run by computer algorithms as they sought better value for money.

Meanwhile, tougher regulations have chipped away at many funds’ profitability.

US hedge fund Perry Capital closed the doors on its flagship fund in September after 28 years of investing. The fund ran around £12bn of investors’ money at its peak in 2007, but by this year that had fallen to £3.2bn. The fund was down 12pc last year.

Chesapeake Partners blamed regulation when it stopped trading in June following an 18-month period of losses. The hedge fund, one of a handful with a female manager, shut up shop after 25 years.

Renowned UK hedge fund manager Crispin Odey saw assets under management at his flagship fund shrink by 60pc in the first nine months of the year.

The number of closures is in sharp contrast to last year when 877 hedge funds were formed across the globe, compared with 833 which were liquidated.

Eurekahedge warned the trend of closures could continue through to the end of the year.