Seward & Kissel’s 2021 New Hedge Fund Study

April 14, 2022

Seward & Kissel’s 2021 New Hedge Fund Study identifies key findings and trends among newly-formed hedge funds sponsored by U.S.-based managers entering the market. The 2021 Study analyzes relevant data points among Seward & Kissel clients meeting these criteria. As the top U.S. law firm servicing new hedge fund launches (source: Preqin), we believe that the number of funds within the Study is large enough to extract a representative sample of important data points that are relevant to the hedge fund industry.

Key Findings:

  • 70% of the funds had equity or equity-related strategies, slightly up from 66% in 2020.
  • With respect to management fees charged in the standard classes, the average rate was 1.52% for equity strategies (about the same as 1.51% in 2020) and 1.66% for non-equity strategies (up from 1.52% in 2020).
  • Incentive allocation rates in standard classes across all strategies averaged 20% of annual net profits (up slightly from 19% in 2020). In addition, approximately 21% of all funds had an incentive allocation hurdle (up from 10% in 2020).
  • Approximately 57% of the equity funds (up from 53% in 2020) and 50% of the non-equity funds (down from 60% in 2020) offered lower management fee and/or incentive allocation rates through their founders classes. For purposes of this Study, founders class capital refers to the early investors in a fund who are sometimes granted better fee terms in exchange for their early commitment, however, such investors are not necessarily seed capital, which is discussed elsewhere in the Study.
  • 82% of the equity funds (up from 79% in 2020) and 90% of the non-equity funds (up from 80% in 2020) offered quarterly (or less frequent) withdrawals, with the balance allowing for monthly withdrawals.
  • Lock-ups or investor level gates were used by approximately 70% of the equity funds (down from 79% in 2020) and, similar to 2020, 70% of the non-equity funds, with 21% of all funds including both (up significantly from 5% in 2020). Fund level gates have continued to be disfavored by both new managers and investors.

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