By Svea Herbst-Bayliss
BOSTON (Reuters) – Establishing a hedge fund with more capital and generating the highest returns in the first year indicate higher chances of survival in the often risky business. Goldman Sachs Group Inc (N 🙂 said in the research released on Friday.
Goldman, who has launched and funded thousands of hedge funds, said that almost all newcomers survive their first year, but that after five years, only 62% of all funds are in business.
The "break-even point after which less than half of managers … keep running seems to be between 6 and 7 years," said Goldman's Hedge Fund Survivorship 2020 report, which was released to clients.
2020 was a particularly difficult year for hedge funds that fought against the spinning markets during the corona virus outbreak. The liquidations reached their highest quarterly level since 2015, as the data show.
American-based managers tend to launch funds with slightly more money, on average $ 230 million than in Europe with $ 200 million and in Asia with $ 98 million. In America the survival rate is 53% lower than in Europe with 64% and in Asia with 62%.
Almost three quarters of the funds launched with assets of $ 1 billion or more are still in business. The data shows that the fortune averages $ 2.9 billion. Among the smallest funds that start at less than $ 25 million, only 40% are in business, Goldman said, putting their average term at 36 months.
Strong returns in the early years often lead to a solid foundation for the company, according to the report, with the industry's largest managers averaging 18% in the first year. Smaller funds returned 9% to 11%.
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