Dec 16, 2018

Why it's the worst time in years to run a hedge fund

The amount of money fleeing into money-market mutual funds hit $81 billion last week, the largest such flow on record. Meanwhile, the flows out of equity mutual funds, at $46 billion, were almost double any other week on record.

Data: Hedge Fund Research; Chart: Andrew Witherspoon/Axios

The big picture: What you're seeing is a risk-off flight to boring safe assets — which means that now is the worst time in years to try to open up a new hedge fund. Just 450 new hedge funds were opened in the first three quarters of this year, the lowest number in a decade.

  • The total number of hedge funds and fund of funds is now 9,760, per HFR — down from 10,142 in 2014. The sector isn't imploding, but it has long since stopped growing.

It's also a bad time to be running an existing hedge fund. Jabre Capital Partners this week joined a long list of other high-profile fund managers — John Paulson, Richard Perry, Highfields, Eton Park, Leon Cooperman and many others — who have decided to return money to their investors rather than keep on struggling in a tough market.

Why it matters: Public equities have rarely seemed less attractive as an asset class, even as big private companies like Uber, Lyft and Slack are set to IPO. If you have a good idea for how to make money in this market, good luck trying to find anybody to bet on you.

Go deeper: A hedge fund titan's lesson from the financial crisis

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