Hedge fund industry shrinks in first quarter-HFR data

By Svea Herbst-Bayliss

NEW YORK (Reuters) - The hedge fund industry shrank in the first quarter, meaning fewer choices of funds for investors and those funds overseeing slightly less money, data released on Thursday showed.

The industry managed $2.86 trillion at the end of the first quarter, down from $2.89 trillion at the end of 2015, research firm Hedge Fund Research reported.

At the end of the first quarter, investors had a choice of 8,430 funds, down from 8,470 at the end of last year, the data show. In the last 12 months, 910 new funds were launched but 1,053 funds were shut down, HFR said.

"The environment for new hedge funds continues to be extremely competitive with discriminating investors exhibiting low tolerance for underperformance, resulting in an elevated number of liquidations," HFR president Kenneth Heinz said in a statement.

During the first three months of 2016, 291 funds went out of business, compared with 217 liquidations in the first quarter of 2015. The pace of new launches was also lower with 206 new funds opened during the first quarter 2016, compared with 264 new funds launched in the first three months of 2015.

Hedge funds are barely making money this year with the HFRI Fund Weighted Composite Index up 0.8 percent in the first five months of the year while the HFRI Asset Weighted Composite Index has lost 1.27 percent. Hedge funds lost money last year.

Many managers had a rough start to 2016 with prominent firms like Tiger Global and Pershing Square reporting double digit losses early in the year. Some firms have shrunk their losses but many are still in the red.

"There is no doubt that we are in the first innings of a washout in hedge funds and certain strategies," Daniel Loeb who runs Third Point wrote to investors in April, adding that early 2016 was "one of the most catastrophic periods of hedge fund performance that we can remember."

(Reporting by Svea Herbst-Bayliss; Editing by Cynthia Osterman)

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