New York (HedgeCo.net) – Two separate reports came out last week that highlighted how the hedge fund industry continues to grow, but the two reports showed growth in two different ways. Both reports were issues by hedge fund research firm HFR with the first one showing that the number of hedge funds being offered has reached an all-time high. The second report showed that assets held in hedge funds reached a record high during the first quarter.
According to the first report, the number of hedge funds and fund of funds available to investors stood at 10,149 as of March 31. This number eclipses the previous high of 10,096 which was reached in 2007. There were approximately 1,040 new funds launched in 2014 while there were approximately 864 that closed. This resulted in an increase of 176.
The second report showed that industry assets have grown to $2.94 trillion which is also a record high. The total assets under management increased by $95 billion in the first quarter, with $18.2 billion coming from new capital allocations. That is the largest inflow since the second quarter of 2014.
Another interesting tidbit from the report was that approximately 150 firms manage $5 billion or more and as a result those firms control almost 70% of the total capital in the hedge fund industry.
Some investors and analysts might see the number of funds reaching a record high as a bad sign for the market when the previous high came just ahead of the bear market in 2007-2009. On the contrary, perhaps investors are catching on to the fact that most hedge funds are designed to protect against a downside move more so than traditional asset management. As a result they are allocating more capital to the industry as they grow more concerned about the overall market after seeing such a strong bullish market over the last six years.
It is interesting to note that during the bear market from 2000 through 2002, the number of hedge funds offered continued to grow, despite the bear market. In fact, the number of funds increased from approximately 4,800 to 6,400 from 2000 through the end of 2002 and the growth continued until 2007. Yes the bear market from 2007 through 2009 was different as it was largely attributable to the financial sector itself. The previous bear market was seemed more like a product of the economic cycle and an over abundance of bullish sentiment in the market.
While the hedge fund industry continues to grow, both in numbers and in terms of assets under management, we feel that HedgeCoVest offers a better solution than traditional hedge funds. You get the benefits of the strategies employed by the hedge funds, but you get them with lower fees, greater security, greater liquidity and greater access.