View On The State Of The Hedge Fund Industry

There is a nice article over at the Information Arbitrage blog regarding the state of the hedge fund industry. In a nutshell, while the number of funds have grown, it is expected that consolidation will continue, and that shape of the industry will continue to approach a "barbell," with large players on one end, and smaller boutiques on the other. The smaller companies will continue to tailor their strategy to their client's needs (which are often fewer in size and looking for diversification), while the larger funds, each offering management stability and track record, reporting, and risk management operations, will continue to attract larger institutional investors. Also noted is the rise of multi-strategy funds that give managers the ability to allocate capital to those strategies that make sense for the current market (essentially, acting like a hedge fund). Finally, funds-of-funds, which in some ways defeat the principle of hedge funds, will continue to gain popularity before leveling off. Even while paying additional fees, recent high profile losses (Bear Stearns, Amaranth) will continue to sway some larger institutional investors to further diversification of alternative investment risk.