Cayman’s fund industry has shown continued strong fund formations in the face of high volatility, record inflation and a growing likelihood of an economic recession.
In the third quarter of 2022, Cayman added a net number of 81 mutual funds and 319 private funds, growing the total number of active funds by 0.2% and 2.1%, respectively.
Since the beginning of the year, the total of mutual funds registered with the Cayman Islands Monetary Authority increased by 297 to 13,016, or 2.3%, while the number of private jumped by 983 to 15,662, or 6.7%.
The slowing growth of mutual fund formations in Cayman in the third quarter reflects the international trend for hedge funds.
Hedge Fund Research estimated in September that the number of new hedge fund launches fell to only 80 in the second quarter, down from 185 in the first three months of this year.
Fund liquidations are heading in the opposite direction with 156 funds closing in the second quarter compared with 126 in the first.
On a 12-month trailing basis, HFR counted 510 new hedge fund launches and 501 fund liquidations.
According to the data provider, institutional investors withdrew about US$26 billion from hedge funds in the third quarter as the total estimated global hedge fund industry capital fell to $3.78 trillion.
While some hedge fund strategies, such as CTA/managed futures, are thriving in the current high volatility, inflationary and rising interest rate environment, the performance of traditional long/short equity funds has followed the general equity market decline this year.
Data provider Eurekahedge reported that following the 2.1% decline in September, global hedge funds have extended their year-to-date losses to 5.9%.
Still hedge funds have offered investors some protection as by comparison the S&P 500 lost 24.8% so far this year.
“Diversifying strategies such as Macro, CTA and Relative Value Arbitrage have demonstrated the robustness and effectiveness of their strategies to institutional investors throughout 2022,” said Kenneth J. Heinz, president of HFR in a press release.
“Strategies which have demonstrated their ability to navigate the current extreme market volatility are likely to attract capital from leading global financial institutions looking to stabilize their portfolios from losses in long equity and fixed income exposures, and to drive industry capital growth into 2023.”
The average industry-wide hedge fund management fee was unchanged from the prior quarter at an estimated 1.36% but is at the lowest level since 2008, when HFR began publishing these estimates. The average incentive fee increased narrowly by 2 bps to 16.05% in the second quarter.
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