Seward & Kissel’s 2024 New Manager Hedge Fund Study evaluates newly formed hedge funds sponsored by new U.S.-based managers entering the market. This Study covers the 2024 hedge fund launches of relevant Seward & Kissel clients meeting these criteria.
Key Findings:
- 77% of the funds had equity or equity-related strategies, slightly up from 74% in 2023. With respect to management fees charged in the standard (i.e., non-founders) classes, the average rate was 1.38% for equity strategies (down from 1.48% in 2023) and 1.75% for non-equity strategies (up from 1.40% in 2023).
- Incentive allocation rates in standard classes across all strategies averaged 17.11% of annual net profits (down from 18% in 2023). In addition, approximately 44% of all funds had an incentive allocation hurdle (a slight increase from 40% in 2023 and a significant increase from 15% in 2022). 50% of hurdles were soft hurdles and 50% were hard hurdles.
- Approximately 70% of the equity funds (up significantly from 49% in 2023) and 50% of the non-equity funds (up from 47% in 2023) offered lower management fee and/or incentive allocation rates through their founders classes.
- 95% of the equity funds (up from 74% in 2023) and 95% of the non-equity funds (consistent with 2023) offered quarterly (or less frequent) withdrawals, with the balance allowing for monthly withdrawals.
- Lock-ups or investor level gates were used by approximately 72% of the equity funds (down from 78% in 2023) and 90% of the non-equity funds (up from 71% in 2023), with 44% of all funds including both (up from 35% in 2023).
- Sponsors of both U.S. and offshore funds continued to almost exclusively set up master-feeder structures (as opposed to side-by-side structures) and utilized the Section 3(c)(7) exemption 66% of the time (down from 75% in 2023 and 87% in 2022). Sponsors launching with just a U.S. standalone fund in 2024 (55%) decreased compared to 2023 (68%).
- Overall, hedge fund seed investment activity in 2024 (i.e., typically, where money is invested by an investor for a locked up time period in exchange for some sort of revenue share in the fees) was comparable to 2023. Institutional seeders remained fairly active, representing the majority of observed seeding activity.
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