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I am a journalism graduate student doing an independent study on hedge funds. I need to understand why hedge funds did exceptionally well in 2007?
Asked by Riya Anandwala

The number of single manager hedge funds witnessed a significant increase and so did the returns. Please let me know asap. Thank you.

Answer By Alex Thompson

Looking at the major indices of hedge funds available, returns in 2007 were between 10 and 13%. These are not spectacular number in the hedge fund industry, and in fact, hedge funds in 2006 posted higher returns than 2007 but weren't able to beat the S&P in 2006.

The growth in the hedge fund industry in 2007 was more due to an excellent year in the markets in 2006. Investors had more money to invest. Hedge funds had positive performance numbers, which help draw in more investors. More people had profitable trading strategies in 2006 and wanted to start their own hedge funds. Also, due to little regulation in the hedge fund industry and the increased availability of brokerage through electronic trading, it was easier than ever to start a hedge fund.