In the years before the global financial crisis, the global hedge fund market experienced dynamic growth, reaching US$2 trillion in assets under management (AUM) in 2008.
Some hedge funds have a net asset value of several billion dollars. As of 2009, hedge funds represented 1.1% of the total funds and assets held by financial institutions, while as of April 2012, the estimated size of the global hedge fund market was US$2.13 trillion.
This period of growth was marked by increased institutional investment as pension funds and university endowments were attracted by uncorrelated returns and low volatility. However, high net worth individuals, traditionally the main investors in hedge funds, have still remained the leading investors in the market.
Hedge funds are private, actively managed investment funds. They invest in a diverse range of markets, investment instruments, and strategies and are subject to regulatory restrictions, which limit participation to certain classes of accredited investors.
Since the economic crisis, new capital coming into the hedge fund market has been largely from institutional investors, who had stuck by the industry during the crisis. This has resulted in significant changes.
Pre-crisis, the majority source of capital came from non-institutional investors such as high net worth individuals and family offices, post-crisis it is now institutional investors who are the leading allocators to hedge funds.
According to a recent hedge fund market report from KPMG, Institutional investors now represent a clear majority of all assets under management by the global hedge fund market, with 57% of the industry's AUM residing in this category. The proportion of hedge fund industry assets originating from institutional investors has grown significantly since the financial crisis.
Key firms within the hedge fund market include, Amaranth Advisors, BlackRock, Bridgewater Associates, Brevan Howard, GLG Partners, Long-Term Capital Management, Man Investments, Marshall Wace, Och-Ziff Capital Management, Paulson & Co., Renaissance Technologies, Soros Fund Management, and The Children's Investment Fund Management (TCI).
From its earliest days, the hedge fund market has earned a reputation for its diversity, resilience and adaptability. Players within the industry have continually proven themselves adept at assessing the implications of their changing environment and then adjusting and reinventing themselves to suit their new surroundings.
Despite some of the challenges that lie ahead for the hedge fund market, the majority of industry participants remain quite enthusiastic about the future state of the hedge fund market as a whole.
For more information on the hedge fund market, see the latest research: Hedge Fund Market
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