June 22, 2006
The changing face of the hedge fund market
In the past three years, the hedge fund industry has literally exploded in size and has gone from about $500 billion U.S. just back in 2003 to over a $1 trillion U.S. last year. The most interesting aspect about this spectacular growth is the increase in the number and types of investors who have begun putting their money into hedge funds. As a result, hedge funds, which have traditionally been short-term investors in public stocks, have undergone a sea change. They have now become players in the buyout, real estate and even venture capital market. All this growth is to sustain returns in an increasingly competitive space.
This trend has been accelerated by the introduction of new Securities and Exchange Commission rules requiring hedge fund managers to register for the first time. Managers that prohibit investors from redeeming capital within two years are exempt from the rule and a number of hedge funds are using the lock-up process to escape registration. As a result, many hedge funds have carved illiquid assets out of existing funds. This has in turn, tied up investors' money for a period of several years in the process.
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