Hedge Fund Attrition Rate Dips For 2nd Year
Hedge Fund Attrition Rate Dips For 2nd Year
February 2007
Hedge Fund Daily
For the second year in a row, hedge fund attrition rates have fallen, according to Hennessee Group, which may sound like good news also suggests the industry is in for change that doesn’t bode well for some players. Basing its findings on its Hennessee Hedge Fund Index, the New York firm reports that 5.1% of funds called it quits last year, down from 5.4% in 2005 and a recent high point of 6.2% in 2004 (The highest attrition rate, says Hennessee, was 6.4% back in 2000). The 2006 year figure is also slightly below the eight-year average rate of 5.2%. Charles Gradante, managing principal at Hennessee, expects the trend to continue. "We are seeing evidence of rising barriers to entry within the industry, including the need for more expensive infrastructure to attract institutional money, which favors larger funds and creates difficult for start-up and moderately sized funds to sustain growth and attract top talent," he says. Gradante adds that in the longer term, "the attrition rate will decline as the evolutionary process continues. Gradante expects that will leave an industry consisting "mostly of funds with larger infrastructure and size, commensurate with institutional needs." He notes that the hedge fund attrition rates "do not imply that failures in hedge funds are substantially higher than other industries."
February 2007
Hedge Fund Daily
For the second year in a row, hedge fund attrition rates have fallen, according to Hennessee Group, which may sound like good news also suggests the industry is in for change that doesn’t bode well for some players. Basing its findings on its Hennessee Hedge Fund Index, the New York firm reports that 5.1% of funds called it quits last year, down from 5.4% in 2005 and a recent high point of 6.2% in 2004 (The highest attrition rate, says Hennessee, was 6.4% back in 2000). The 2006 year figure is also slightly below the eight-year average rate of 5.2%. Charles Gradante, managing principal at Hennessee, expects the trend to continue. "We are seeing evidence of rising barriers to entry within the industry, including the need for more expensive infrastructure to attract institutional money, which favors larger funds and creates difficult for start-up and moderately sized funds to sustain growth and attract top talent," he says. Gradante adds that in the longer term, "the attrition rate will decline as the evolutionary process continues. Gradante expects that will leave an industry consisting "mostly of funds with larger infrastructure and size, commensurate with institutional needs." He notes that the hedge fund attrition rates "do not imply that failures in hedge funds are substantially higher than other industries."
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