NEW YORK (HedgeWorld.com) — A survey by Tabb Group puts the number of hedge funds at 8,600 and total industry assets at US$930 billion. While the asset amount is below the US$1 trillion found by other studies, the number of funds is higher than the often-quoted 7,000.
Tabb Group, based in Westborough, Mass., does not expect the growth trend in the number of funds to continue, predicting that a combination of weak performance, rising overhead costs and increased regulation will prune funds, especially smaller ones, over the next few years.
The chasm between small and large funds is increasing, with smaller funds competing in an ever more difficult environment while the large vehicles mature into mainstream asset management firms, according to the report.
Regarding smaller firms, "Many are not raising capital fast enough to sustain a long-term franchise, and increasing regulatory costs will only raise the financial pressure," writes Tabb senior consultant Josh Galper.
The survey indicates that 38% of managers come from other hedge funds, 38% come from the sell side and 21% come from traditional asset management. As for the investors, institutions dominate across all fund sizes.
In funds with more than US$1 billion in assets, 57% of the investors are institutions, 24% are individuals and family offices and 19% are funds of funds. More surprisingly, even in funds below the US$100 million mark, more than half the investors are institutions, on an asset weighted basis.
"All capital comes from our institutional investor. We have an exclusive distribution deal with them," a participant from a small fund told the survey. Mr. Galper comments that institutions are launching or helping launch hedge funds and have strong relationships with the managers.
