“Non-Top-100” hedge fund segment is flat-lining

In an apparent rebuke of the commonly-held belief that hedge funds are sprouting up like weeds, Alpha Magazine’s recent survey of the top 100 hedge fund companies suggests the “non-top-100” category (including up to 9,000 funds by some estimates) have actually been flat-lining over the past 3 years.   And when you adjust for the returns generated by the funds themselves, a picture of possible asset outflows begins to take shape.

As The New York Times observes:

“The 100 largest firms in the world managed $1 trillion at the end of last year, or 69 percent of all the assets in hedge funds, according to Alpha. At the end of 2003, the top 100 had less than $500 billion, or only 54 percent of total hedge fund investments.”

If the $1 trillion managed by the top 100 at the end of 2006 represented 69% of all hedge fund assets, then “all hedge fund assets” were about $1.45 trillion ($1 trillion/69%).  Therefore, the “non-top-100” group must have managed the other $450 billion.

This is barely more that the amount managed by this group at the end of 2003.  The Times observes that the $500 billion managed by the top 100 at the end of that year represented 54% of all assets in hedge funds.  (Mike Peltz of Alpha Magazine tells AllAboutAlpha.com that the actual “top 100” number was around $450 billion that year).  Therefore, with total assets of around $820 billion by the end of 2003, the “non-top-100” funds managed approximately $370 billion.

So the total growth of the “non-top-100” segment was about 20% from December 2003 to December 2006.  That’s a compounded annual growth of under 7%.  Assuming returns were at least as high as this, it appears that this group isn’t sharing in much of the new asset flows.  Peltz suggests this might be a result of the flight to quality (read: size) taken by the institutional investors that have recently entered the hedge fund market.

Whatever the reason, it seems the “weed problem” proclaimed by some pundits may be taking care of itself.  No Round-up required.

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