Hedge fund liquidations hit a record high last year as poor performance and funding pressure, amid dire market conditions, forced almost 1500 funds, or 15 per cent of the industry, out of business.
Most of the damage was done in the second half of the year, according to latest figures from Hedge Fund Research, the data provider.
Investors withdrew a record $150bn from hedge funds in the fourth quarter alone and, 778 funds liquidated during that period, more than doubling the previous quarterly record of 344, set in the third quarter last year.
The total number of liquidations last year was 1,471, an increase of more than 70 per cent from the previous full year record set in 2005.
The fourth quarter also saw a sharp drop in the number of new funds launched, with just 56 launches versus 117 in the third quarter. In spite of the market conditions, more than 650 funds began operations over the course of the year.
On a net basis, the total number of hedge funds declined by about 8 per cent to 9,284.
The funds of hedge funds industry also suffered, with more than 275 funds of hedge funds liquidated last year, another record.
A separate survey by Absolute Return magazine, an industry publication, found that more than 200 hedge funds or fund families in the Americas shuttered or began to liquidate in 2008. At the height of their success, these funds managed combined assets of $84bn.
Three of the top 10 funds that closed last year were Madoff feeder funds, including Fairfield Greenwich Group’s Fairfield Sentry Fund, the biggest casualty of 2008 with an estimated $6.9bn in losses.
Gabriel Capital Group and Ascot Partners, two funds controlled by hedge fund manager Ezra Merkin, represented an estimated $3.3bn in assets connected to Madoff. Tremont Group’s Rye family of funds, which included more than 10 vehicles, may have lost more than $3.1bn, according to Absolute Return. Other vehicles that got caught up in the Madoff scheme include Kingate Management’s Kingate Global fund, with a reported $2.7bn affected, and Maxam Capital’s Absolute Return fund, which has $280m with Madoff.
The research also notes that the number of closed or liquidating funds would likely have been far higher had so many hedge funds had not suspended redemptions or placed loss-making or illiquid positions in side pockets or special vehicles.