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Date: Monday, November 15, 2004

Multi-year Analysis Points to Growth of Fund of Funds; Greater Diversification; Fee Stability

CHICAGO— November 15, 2004— Hedge Fund Research, Inc. (HFR) the leading source of hedge fund information and performance data, today announced that HFR Database now comprises more than 8,000 active and defunct funds, and that 4,000 of those are currently reporting, making it the first commercially available fund data source to hit this threshold.

“The rapid growth rate of the Database not only speaks to the growth of the industry, but also the increasing understanding of fund managers that reporting performance to us is essential to gaining exposure to investors, ” said Joshua Rosenberg President of HFR.

In surpassing the 4,000 reporting funds level, HFR has quadrupled the number of active funds reporting in1998 when the Database showed 1,000 funds. The expansion is more remarkable when considering that 1,250 funds have ceased operations during that time and have been removed from the Database. An analysis of the data from these more than 5,200 active and defunct funds in operation during the past six years reveals several interesting patterns in fund focus, size, and investor preference.

Fund of Funds
Perhaps the most drastic change has been the extraordinary growth in the Fund of Funds sector, which commits capital to a basket of hedge funds, seeking to provide investors with an increased level of diversification and stability. In 1998, HFR cataloged a total of 204 Funds of Funds, which collectively managed approximately 18% of the assets then reported to the firm. The database now tracks more than 1,200 such funds (an increase of nearly 500%) which collectively manage more than 41% of the assets represented in the database. In fact, nearly one third of the new funds that have joined the HFR database since 1998 are Funds of Funds. The firm attributes this robust growth to the growing demand of institutional, endowment and public pension investors looking for the stable, non-correlated returns typically characterized by this asset class. The trend has also been fueled by the growing “retailization” of some Funds of Funds that offer lower minimums than the $1 million typical of single strategy funds.

In 1998, the top five strategies and sub-strategies ranked by assets under management (Macro, Equity Hedge, Equity Non-Hedge, Event-Driven, and Equity Market Neutral) collectively controlled nearly 66% of database assets. In 2004, the top five categories (currently, Equity Hedge, Relative Value Arbitrage, Event-driven, Macro and Managed Futures) control only 53% of assets. The decrease in asset concentration in the most popular categories points to a greater diversification of the hedge fund sector as a whole.

Often cited as the downside of hedge fund investing, performance and management fees, have remained relatively unchanged over the survey period. Single-strategy fund management fees have moved from an average of 1.27% in 1998 to 1.43% in 2004, while Fund of Funds fees have actually declined slightly from 1.40% to 1.35%. Performance fees, which fund managers receive as a reward for positive performance, increased slightly on the single-strategy side from 18.19 % in 1998 to 19.17% in 2004, while declining slightly for Funds of Funds from 8.20% to 8.10%.

Fund Categories
There were also notable trends visible within the categories themselves:
- The mammoth $264 billion Equity Hedge sector which invests primarily in long equities hedged at all times with short sales of stocks and/or stock index options, gained considerable ground, adding 800 new funds (28% of the 2,850 new single strategy funds reporting to HFR over the survey period). At the same time these funds reported a 388% increase in total assets under management, eclipsing the 222% growth rate for the Database as a whole. As a result the category expanded its percentage of assets in the Database from 12.9% in 1998 to 19.6% today.
- The Relative Value Arbitrage category, a multi-strategy discipline that attempts to take advantage of relative pricing discrepancies between instruments including equities, debt, options and futures, also showed a remarkable rise in popularity.
The category increased from just 27 funds, controlling 3.6% of total Database assets, in 1998, to 115 funds, controlling 10.6% of total assets in 2004. The sector also currently claims the largest average size for individual funds ($382 million per fund).
- The Distressed Securities Category, which invest in, and may sell short, the securities of distressed companies showed remarkable interest, expanding from 2.3% of Database assets in 1998 to 6.7% today. These funds also showed astounding growth in terms of the size of individual funds, averaging more than $249 million per fund, almost twice the sector-wide average.

- The Macro sector, which makes leveraged bets on anticipated price movements of stock markets, interest rates, foreign exchange and physical commodities, showed signs of its retreat from its top status in 1998. Although remaining a leading category with solid returns over the past few years, the category declined from 21.6% of total Database assets in 1998 to 7.6% today. During that time, assets under management for the category has expanded by only 12%.
- The Equity Non-hedge category, which invests primarily in long equities, saw a marked erosion of market share, declining from 12.3% of total Database assets in 1998, to 4.7% today. At the same time, the number of reporting funds employing the strategy declined precipitously from 175 to 112.

For more information on HFR Database and other products such as HFR Industry Report or on HFRI Indices, please visit www.hedgefundresearch.com.
About HFR
Chicago-based HFR Group L.L.C, founded in 1993, is one of the global leaders in hedge fund data, research, indexation and asset management. The HFR Group companies include Hedge Fund Research, Inc., and HFR Asset Management L.L.C. Hedge Fund Research produces HFR Database, considered to be the definitive source of hedge fund performance and information. HFR also distributes the HFRI Monthly Performance Indices–the premier benchmarks for the hedge fund industry. With $3.5 billion in assets under management, HFR Asset Management offers a range of hedge fund investment products: Investable Indices, Funds of Funds, single-manager funds and customized multi-manager funds.