The latest figures from New York hedge fund consultancy Hennesee show a second successive annual fall in attrition rate. The 2006 attriti...

The latest figures from New York hedge fund consultancy Hennesee show a second successive annual fall in attrition rate.

The 2006 attrition rate for hedge funds in the Hennessee Hedge Fund Index compares, at 5.1 per cent, with 5.4 per cent in 2005 and an eight year average rate of 5.2 per cent.

The figures refer to those of the index's constituents with assets of more than $10 million going into liquidation. They do not include funds still operating but closed to new capital.

Charles Gradante, Hennessee's managing principal, said: "Despite the fact that the investment management business is extremely competitive, the attrition statistics do not imply that failures in hedge funds are substantially higher than other industries.

"Furthermore, we are seeing evidence of rising barriers to entry within the industry, including the need for more expensive infrastructure to attract institutional money, which favours larger funds and creates difficulty for start-up and moderately sized funds to sustain growth and attract top talent.

"Long term, we believe the attrition rate will decline as the evolutionary process continues, leaving the industry to be comprised mostly of funds with larger infrastructure and size, commensurate with institutional needs."

The Hennessee Hedge Fund Index was started in 1987 and includes about 1,000 funds.