It seems like everyone - and their mother - knows someone starting up a hedge fund these days. According to the Hennessee Group, a U.S. investment consultant, there are now 8,050 hedge funds, up from 7,000 last year. Time will tell if this rapid growth is a long-term trend, or a short term fad of investment style.
Hedge fund assets rose $139 billion to $934 billion last year, with $75 billion of this growth owing to new capital inflow. The rest of the growth came from the funds' 8.27% performance last year (as compared to the DJ Wilshire 5000's 12.62% return). Hedge fund assets now amount to about an eighth of the size of the mutual fund industry.
Index providers seem to fall into the camp that believes that hedge funds are here to stay - in volume. Most of the major index providers, including MSCI, S&P, FTSE and Dow Jones Indexes have launched a full line of hedge fund indexes designed to track the performance of various hedge fund investment styles.
The hedge fund investment style that grew the most last year was arbitrage and event-driven funds, which grew over 27% over the year - which begs the question - where were all of those funds during the QQQQ opening cross on December 17th?