LONDON, April 30 (Reuters) - New multi-strategy hedge

fund launches accounted for less than one in 10 of new funds in

the first quarter, down from about one in four in the last

quarter of 2023, according to data provider Preqin, a sign that

investors witnessing higher market volatility might be seeking

less risky prospects.

Launches for this kind of hedge fund, housing different

kinds of trading strategies, have fallen to their lowest in

around a year since Preqin started collecting this data.

"The current economic climate and market volatility might be

prompting investors to favor more specialized or less complex

investment strategies," said Bruno Schneller, managing director

at Erlen Capital Management, which invests in hedge funds.

He added that less interest to launch new multi-strategy

funds may also stem from high costs needed for operational

infrastructure and hiring.

While the S&P 500 and the European STOXX 600

have risen roughly 7% and 6% respectively so far this year,

volatility has also increased with the VIX index hitting

its highest level since October earlier in April.

Only seven multi-manager hedge funds manage assets larger

than $10 billion, according to Barclays' prime brokerage

research. Of 47 multi-manager funds the bank tracks, 32 oversee

less than $5 billion of assets.

Annualised performance of hedge funds launched in the last

three years was about 7.9%, almost a percentage point less than

established incumbents that managed over $5 billion, said an

April report by Barclays prime brokerage.

This hedge fund strategy failed to outperform compared to

the wider industry last quarter, posting on average a 3.3%

return compared with a 4.4% performance by the broader segment,

a Barclays report focused on multi-manager hedge funds in the

first quarter of 2024 showed.

That contrasts to the last three years where multi-manager

hedge funds returned an average 6.6% performance, about a

percentage point higher than peers.

Hedge funds taking bets on stocks posted the highest returns

versus other strategies and had the largest share of new

launches in the first quarter, the Preqin report showed.

Funds that take long and short positions in equities

accounted for about 38% of the industry's new launches in the

first quarter, the highest proportion since the second quarter

of 2023, and 2% higher than the previous quarter, Preqin said.

A short trade bets an asset price will fall in value, a long

trade anticipates a rise.

These hedge funds marked about a net 17% positive return

over the last 12 months, the highest performance compared with

other strategies during that time, Preqin said.

Given the opportunistic trading environment, investors may

apply more pressure for these hedge funds to perform this year.

"Underperforming managers will experience above average

redemptions with these assets being reinvested in better

performing managers," said Don Steinbrugge, founder and chief

executive of Agecroft Partners, a hedge fund consulting firm.