The hedge fund industry has grown 27 per cent from $795 billion to over $1 trillion in 2004, according to the 11th annual Hedge Fund Manager...

The hedge fund industry has grown 27 per cent from $795 billion to over $1 trillion in 2004, according to the 11th annual Hedge Fund Manager Survey produced by Hennessee Hedge Fund Advisory Group, the oldest such survey in the world. Manager performance accounts for about 10 per cent of asset growth in the hedge fund industry, while new capital inflows has been responsible for 17 per cent of the new growth. Since 1987, the report noted that the number of hedge fund managers has grown from 7,000 to over 8,050 in 2005, an increase of 15 per cent. Hennessee managing principal, Charles Gradante, said, “The growth in the hedge fund industry has largely become a 'zero sum game' on the long side since the capital is largely being reallocated from long only equity and bond managers to hedge funds. "The real growth concern going forward is the potential difficulty maintaining historical short hedge ratios due to a supply shortage of stocks and bonds to borrow. Consequently, the use of derivatives to hedge will likely increase as the industry grows going forward; a situation which will change the industry's landscape." High net worth individuals and family offices continue to represent the largest source of capital for hedge funds, comprising 44 per cent of total industry assets whilst fund of funds continue to be the fastest growing source of capital for hedge funds, with capital increasing 348 per cent since January 2000 (from $63 billion to $282 billion). The 2005 survey respondents include 752 hedge funds from 155 management companies representing over $238 billion in assets, although CTAs were excluded.