Hedge funds clamped down on withdrawals in 2022, study says
The share of hedge funds limiting withdrawals to a quarterly, or less frequent, basis climbed to 91% in 2022, up from 81% five years ago, according to the Seward & Kissel New Manager Hedge Fund Study, released last week.
This increased restriction was especially pronounced in funds using nonequity strategies, according to the study. Only 55% of such funds limited withdrawals to a quarterly basis in 2018, while 93% did so last year.
Moreover, in 2021, only 21% of all funds used both investor-level gates, thereby restricting the amount an investor may redeem at any given time, and lock-ups, thereby prohibiting investors from withdrawing capital for a stated term. But in 2022, that figure had doubled to 42%.
Among standard classes of equity funds, the use of investor-level gates surged to 60% in 2022 from 18% in 2021, the study revealed.
The study also indicated that the portion of managers who launched with just a U.S. standalone fund rose to 60% in 2022, up from 39% in 2021. The share of funds with equity-related strategies rose to 76% in 2022 from 70% in 2021, approaching the study's high-watermark figure of 80% from 2015.
Management fees for standard classes using equity strategies declined to 1.42% in 2022 from 1.52% in 2021. In addition, the average notice period required for withdrawals increased to more than 63 days in 2022 from almost 51 days in 2021.
In addition, the study found that about 76% of the funds had equity or equity-related strategies, up from 70% in 2021. Also, about 59% of the equity funds (roughly the same as in 2021) and 53% of the nonequity funds (about the same as in 2021) offered lower management fees and/or incentive allocation rates through their founders classes.
"An interesting finding this year was the high percentage of managers launching only in the U.S.," Nick Miller, a Seward & Kissel Investment Management Group partner, said in a release issued with the study. "That phenomenon in part reflects a strategy among new managers to build a track record first, upon which they can attract offshore and U.S. tax-exempt investor interest in the future and we believe is indicative of the ever-challenging fundraising environment."
A spokeswoman for Seward & Kissel said by email that the Investment Management Group is a practice group within Seward & Kissel.
"The recent uptick in investor-level gates and hard lock-ups could be attributable to a particularly high demand for alternative investment strategies with longer liquidity profiles," Miller said.
Seward & Kissel LLP is a U.S. law firm with an expertise in hedge fund and investment management work.