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8 Dec 2006

Hedge Fund Survey

Hennessee Group's 12th annual hedge fund manager survey reported that hedge fund assets grew 21% from $1.009 trillion as of June 30, 2005, to $1.2 trillion by Oct. 31.

"Hedge funds are evolving in a manner similar to that of investment banks of old," said Charles Gradante, managing principal of Hennessee's survey. "The fact that they’re getting into venture capital and private equity is no big surprise," Mr. Gradante said. Though the investment vehicles once were "pigeonholed" as bond and stock players, today’s hedge funds have taken significant positions in tech and biotech companies, are floating bonds and are even funding movies made by actor Tom Cruise after his split with Paramount Pictures. A New York-based hedge fund, Fortress Investment Group, with $26 billion in assets, has become the first in the nation to file for an IPO.

The 2006 Hennessee survey also found that the number of hedge funds grew 10%, from 8,050 to 8,900. The survey was conducted on 440 hedge funds from 97 management companies representing over $256 billion in assets.

Though hedge funds traditionally have stood apart from regulated investments like mutual funds, the survey found that 86% of hedge funds are registered with a regulatory agency, such as the Securities and Exchange Commission, the NASD or state authorities. That compares with 61% in the earlier period.

Mr. Gradante likened the changes in hedge funds to the evolution of investment banks such as Lehman Brothers and Goldman Sachs from the 1930s to the early 1990's. "Hedge funds are evolving in the same way investment banks evolved," he said. "They’ll play an important role in financing venture capital in the future." Mr. Gradante also noted that one of the white-shoe investment banks, Goldman Sachs, also is the nation’s No. 1 hedge fund.

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