Hedge Fund Assets Set To Quadruple, Says Report

by Carla Johnson, Investors Offshore.com

19 December 2005

Despite this year's poor performance for the hedge fund sector and the hedge fund registration deadline looming in the United States, Australia's Money Management has reported that hedge fund assets are likely to continue growing rapidly and could even quadruple by the end of the decade.

According to a report from Boston-based consultancy Cerulli Associates, which has released an analysis of the sector, the hedge fund industry will overcome barriers to growth such as increased regulation of hedge fund markets and the fraud-driven collapse of some large hedge fund managers in the United States and Britain.

"Hedge fund managers conceded that the speed of future hedge fund growth is predicated on the industry’s ability to mitigate concerns about performance (35.7 per cent) and seismic collapse (35.7 per cent),” observed Cerulli senior analyst Benjamin Poor, who wrote the report.

Although the US Securities and Exchange Commission has passed a rule requiring hedge funds to register as investment advisors from February, Poor predicts that the increased regulation will ultimately benefit the industry by increasing transparency and investor confidence.

However, Poor believes that the three main drivers of hedge fund growth will be demand for absolute returns, different investment techniques, and the need for a unique vehicle structure.

Increased access to retail investors will also open new avenues to growth.

“While high-net-worth investors are the traditional bailiwick of hedge fund managers, hedge funds have been unable to latch on to lower-net-worth investors, due not only to investor preferences, but also to lack of regulation and transparency. Nonetheless, the advent of funds of hedge funds (FOHFs) and hedge mutual funds greatly increases the availability and ease of the use for retail investors,” Poor said.

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