Deal Journal reports a few sobering industry statistics generated by Eurekahedge. 15% more funds have closed during the first half of this year, than during the same time in 2007, and launches have slowed as well. Industry growth, in terms of number of funds, is nearly flat.
More seriously, data that is already almost two months old also shows severly inadequate performance, and things haven’t gotten easier since then. Funds are not meeting their high water marks, the valuation threshold that allows a fund to collect the performance fees (20% of gains or thereabouts) that constitute its profit. Only one in ten hedge funds is now earning performance fees. One fund executive doubts that some funds — assuming they survive so long — will begin again to earn them before 2010.
Though investors have been pulling money from hedge funds for many months, funds that retain credibility with investors may ride it through. But since bonuses are often determined from performance fee earnings, hedge fund compensation is looking to be very tight this year, in any case.