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Hedge fund growth to plateau in 2011?

Date: Wednesday, October 25, 2006
Author: FT Alphaville, Blog

In the blogosphere, All About Alpha, picks up on a new Merrill Lynch report which suggests that the explosive growth in the number of hedge funds is on course to peter out around 2011.

The authors point out that the hedge fund industry appears to be developing along a strikingly similar path to US

mutual funds in the 1980s and 90s.

On that basis, the number of hedge funds globally should peak at 8,000 or 9,000 in 2011.

Merrill also points to increasing concentration as an early sign of the growing maturity of the industry. All About Alpha takes the numbers from Alpha magazine - that the largest 100 hedge funds managed 65 per cent of single-manager hedge fund assets at the end of 2005, leaving 6,000 to 7,000 funds with the remaining 35 per cent - to mean that the bulk of the industry, the non-top 100, experienced a net outflow of assets over 2005.

The conclusion: “Like many similar industries before it, the hedge fund industry leverages new intellectual capital to exploit the Achilles heal of an entrenched and mature industry.  But these new cottage industries almost invariably evolve beyond their humble roots as ’industrialization’ takes hold.  We see no obvious reason why the hedge fund industry shouldn’t evolve in a similar way.”