Fewer hedge funds opened their doors in the fourth quarter, according to HFR Hedge Fund Research.

Hedge fund launches slipped to 220 in the fourth quarter, the second lowest quarterly launch total in the last six quarters.

For 2010 as a whole, launched totaled 935, marking the best year for new funds since 2007, when nearly 1,200 hedge funds launched.

Hedge fund liquidations totaled 743 in 2010, the fewest since 2007 and nearly half of the record calendar year liquidation total of 1,471 set in 2008.

Just 158 funds liquidate in the fourth quarter, the lowest total since the fourth quarter of 2007 and about one-fifth of record total of 778 funds which liquidated two years earlier in the fourth quarter of 2008.

HFR also said the dispersion of performance between the best the worst performing hedge funds narrowed considerably in 2010 from the “staggering” levels of 2008 and 2009, with only 58 percentage points of performance separating the average of the top and bottom deciles of hedge fund industry returns for the year.

The HFRI Fund Weighted Composite Index, a proxy for broad industry returns, returned 10.3 percent for 2010. The top decile of funds returned an average of 43.2 percent while the bottom decile declined by 14.6 percent. Performance dispersion reached a record level of 116 percentage points in 2009 when the top decile gained an average of 100 percent; in 2008, dispersion was about 103 percent as the bottom decile lost a record 62.4 percent.

JPMorgan and Goldman Sachs remained the top prime brokers to the hedge fund industry last year; with 19.7 percent of funds listing Goldman Sachs as prime broker while J.P. Morgan is listed as prime broker for 29.3 percent of all hedge fund assets. Citco Fund Services; Schulte, Roth & Zabel; and PricewaterhouseCoopers were each top service providers, based on assets under management, for administration, legal and auditing, respectively.

Average hedge fund incentive fees continued to decline, falling to 18.95 percent industry wide, the lowest level since HFR began tracking aggregate industry fee structure; average management fees were unchanged at 1.58 percent.