A growing shift in portfolio dynamics towards longer-held positions is resulting in a need to tighten liquidity rules in the hedge fund industry, says the Seward & Kissel ‘New Manager Hedge Fund Study.’
A growing shift in portfolio dynamics towards longer-held positions is resulting in a need to tighten liquidity rules in the hedge fund industry, says the Seward & Kissel ‘New Manager Hedge Fund Study.’
The annual analysis, produced by a law firm specializing in the private fund industry, revealed that hedge funds are increasingly implementing measures to limit liquidity through withdrawal frequency, investor-level gates, and hard lock-ups. This trend was particularly pronounced in 2022, likely in response to the economic uncertainty prevailing at the time. The percentage of funds restricting withdrawals to a quarterly or less frequent basis rose from 81% five years ago to 91% in 2022. Among funds employing non-equity strategies, the increase was even more significant, with only 55% imposing quarterly withdrawal limits in 2018 compared to 93% last year.
Interestingly, the trend towards stricter liquidity constraints was less prominent among established managers.
Nick Miller, a partner at Seward & Kissel Investment Management Group and lead author of the study, says the recent surge in investor-level gates and hard lock-ups may be driven by the increased demand for alternative investment strategies with longer liquidity profiles.
