The Incredible Shrinking Hedge Funds Universe

Survival of the fittest? The number of hedge funds available for investors to select is falling.

The number of hedge funds has been shrinking over the past two years, despite assets in the sector increasing, research has found.

Between 2012 and 2013 there was a drop of more than 6% in the number of hedge fund firms reporting assets and results to eVestment’s database, the company said today.

This represented a fall of 194 firms over the twelve months.

Broken down into firm types, it was the multi-fund firms that disappeared in the greatest numbers. These included firms running managed futures and commodity trading advisor vehicles.

The amount of firms managing three funds dropped by 21.1% over the 12 month period, followed closely by a 19.8% fall in the number of those managing two funds.

Single fund managers only lost 2.2% of their community, while firms managing four or more funds lost peers, but the number of them dropped by just a few percentage points.

Despite fewer players, assets in the sector have continued to grow since the financial crisis.

“Reported single-manager hedge fund assets increased by $262.5 billion in 2013,” eVestment’s report said. “Funds with, or exceeding, $750 million in assets under management accounted for 100.6% of this reported rise (smaller fund declines were offsetting of the total) and nearly 84% was concentrated in the $1 billion or larger group. New allocations, performance-based gains, and hedge funds reporting asset information for the first time or improved master asset data helped elevate the total reported assets under management.”

The number of fund of hedge fund firms dropped by 8.3% over the period, while companies offering both single manager and fund of hedge funds strategies fell by 12.3%.

Last month, Credit Suisse reported that 97% of a selection of investors would allocate to hedge funds in the second half of the year, as equity and bond markets continued to disappoint.

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