A surge in shutdowns, lagging performance, and slashed fees: Hedge funds have had a brutal 6 months

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A man pauses outside of the New York Stock Exchange (NYSE) on January 15, 2016 in New York City.

• The third quarter had 174 hedge fund liquidations, according to a new report from Hedge Fund Research, 37 more than the same time a year prior.
• Launches in the third quarter only totaled 144, making last quarter the first in more than a year that closures outpaced launches.
• Hedge fund aggregate performance is down 2% through the end of November, thanks in part to a decline of 3.1% in October alone.

The recent market volatility that has been top-of-mind for retail investors, politicians and Wall Street mainstays hit hedge funds hard, according to a new report from Hedge Fund Research.

"Financial market volatility accelerated through the third quarter and into year-end on ongoing trade and tariff negotiations, contributing to decreased investor risk tolerance and an increase in fund liquidations," said Kenneth Heinz, president of HFR.

Hedge funds, on aggregate, were down 3.1% in October and are down 2% through the first 11 months of the year. Prominent investors like John Paulson, Jason Karp, Dmitry Balyasny, and Dan Och have all returned money to investors after shuttering funds this year.

For the first time since the second quarter of 2017, hedge fund liquidations outpaced launches in the third quarter -174 to 144. The 174 liquidations dwarfed second quarter's 125 closures, but the number of launches was essentially unchanged, quarter-over-quarter.

These launches have been catering to the new industry reality, with many hedge fund start-ups pushing down their fees to entice investors.

HFR's report states that "average hedge fund management fees remained at the lowest level since HFR began publishing these estimates in 2008" at 1.43%, while the average incentive fee is at its lowest levels ever, 16.93%. New funds launched through the first three quarters of this year have had an average management fee of 1.30% - 13 basis points lower than the industry average.

The average incentive fee of newly launched funds however is above average at 17.58%.

The report put industry assets at $3.2 trillion as of the end of the third quarter, with $11.1 billion of net outflows from hedge funds through the first nine months of the year.