Trying to answer that question is like measuring a herd of buffalo. No one really knows how many funds there are or exactly how much money is under management. One reason is because hedge funds are largely private and spread across the globe. They aren’t required to report to any regulatory body (yet), with the exception of funds that have public listings in the U.S. and elsewhere.
New funds spring up weekly and old funds are liquidated. Investors can allocate assets to hedge funds without any public disclosure. A further complication is the fact that many different types of funds call themselves hedge funds. Yet many do not even use short-selling to “hedge” the downside risk of investments, part of the traditional definition of a hedge fund. Often their only tie-in with the hedge fund moniker is that they have adopted the lucrative “2 and 20” fee structure popularized by the hedge fund industry.
What we do know is that the hedge fund industry has expanded dramatically since 2000. That year, assets under management were only around $450 billion, according to estimates by the Alternative Investment Management Association (AIMA).
The industry saw dramatic growth for much of this decade, culminating at a peak in early 2008. At that point many industry experts estimate that there were between 10,000 and 12,000 hedge funds managing somewhere between $3 trillion and $4 trillion in assets.
Next time, we’ll take a look at what’s happened to the industry in 2008…