New hedge fund launches are to reach their lowest point in 24 years, according to hedge fund research firm Preqin. Data from the first three quarters of 2024 indicates that only 123 new hedge funds were opened, the fewest since at least 2000, when launches totaled 191. The peak of hedge fund debuts occurred in 2017, with 697 new funds, but the current slowdown points to a more challenging environment for fund managers.

The decline in new fund launches has been due to tough fundraising conditions in key markets like the U.S. and Europe, as well as stricter internal regulations in China. Preqin’s survey from November revealed that 40% of the fund managers reported more difficulty in raising funds in 2024 compared to the previous year. Another 40% noted that while the situation hadn’t changed since 2023, fundraising remained a challenge.

New Hedge Fund Fall to 24-Year Low Amid Challenges

While the number of new launches has decreased, niche funds focusing on areas like insurance-linked securities and cryptocurrencies have surged. These types of funds have more than doubled in number over the past five years, growing from 730 in 2019 to 1,570 in 2024. Additionally, multi-strategy fund launches have steadily increased at an annual rate of 4% since 2017.

Interestingly, hedge fund closures have also reached their lowest level in a decade, suggesting a degree of stability in the industry despite the fundraising struggles.

While this fund creation has slowed, the hedge fund industry has still seen growth in assets under management (AUM), driven primarily by strong performance rather than new inflows. Hedge funds saw net cash distributions of $8.4 billion over the year leading up to September 2024, while in the third quarter alone, they attracted a net $25.5 billion of new investor money.

Despite the difficulties in launching new funds, the hedge fund sector remains resilient, demonstrating growth in both performance and investor interest.

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