Large Hedge Funds Taking Over From Smaller Counterparts

According to a report by research and data provider Hedge Fund Research, about 863 funds were launched through the third quarter, nearly half the amount for all of
2006. About 408 asset pools were liquidated compared with 717 in 2006.

In 2003, 1,094 new funds were introduced. Liquidations fell to an industry low of
296 funds in 2004.

Kenneth Heinz, Hedge Fund Research president, said investor requirements for size and infrastructure may be making it more challenging to launch a new fund, “In the third quarter of this year, investors allocated nearly 90% of new capital to funds with greater than $1bn (€695.8bn) already under management.”

Big hedge funds tower over the industry. Heinz said less than 10% of hedge funds controlled 73.5% of capital for the year through the third quarter. Half of the $45bn in new hedge fund capital in the third quarter was allocated to funds of hedge funds.

Heinz said that although some collapses were caused by bad investments tied to the sub-prime mortgage market, he said the majority of funds were closed because they failed to meet the expectations of fund managers or investors.