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Hedge funds pruned in '06

Date: Thursday, October 5, 2006
Author: Riva Froymovich, InvestmentNews.com

The $1.3 trillion hedge fund industry may be decelerating as less than half as many hedge funds have opened so far this year compared to a year ago, according to Chicago-based Hedge Fund Research and published reports.

In the first half of last year 1,211 hedge funds were launched, reports said, while this year has brought only 549.

The market topper reputation of hedge funds has diminished too as stocks actually perform better: HFR's index is up 7.23% through September, whereas the Standard & Poor's 500-stock index is up 12.4% over the same period, according to The New York Times.

However, fewer funds have closed this year, 223 versus 428 in the first half of 2005.

Moreover, $66.1 billion flowed into hedge funds in the first and second quarters of 2006, reports said.

The potential for extreme profits continues to attract investors despite the risks, which have received widespread publicity in the wake of the Amaranth meltdown.

And Amaranth is not alone in its fall from financial grace.

Goldman Sachs' hedge fund reportedly fell 10% in August, and Vega Asset Management, which was one of the 10 largest hedge funds in the world, dropped more than 11.5% in September-17.5% down for the year.

HFR hasn't compiled data yet for the third quarter.