Thursday, March 29, 2007

Hedge Funds Now Bigger Than China



New data shows that hedge fund assets increased 30% to $2 trillion, making the hedge fund industry bigger than China, the former Soviet republics and Japan combined.

Hedge funds worldwide returned an average of 13 percent last year, according to Chicago-based Hedge Fund Research, which estimates global assets in the industry at $1.4 trillion. That return lagged behind returns including dividends of 16 percent for the Standard & Poor's 500 Index and 21 percent for the MSCI World Index.

It's the same over the long term. Imagine how well they would have done if they actually beat the market. Then they would be larger than the entire solar system south of Neptune.

The Bloomberg article on this goes on to say "The survey said `an increasing proportion' of hedge fund assets comes from institutional investors, and half of the industry's assets are invested through funds of hedge funds with portfolios that include a mix of other hedge funds."

I never trust articles that begin "survey said," as it reminds of the old Richard Dawson line from Family Feud. But I do believe that survey and I do believe that institutional investors, who are paid handsomely to underperform the market, will continue to drive hedge funds ever larger, until they conquer the universe.

© 2007 Gary Weiss. All rights reserved.

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Wall Street Versus America was published by Penguin USA on April 6.
Click here for its Amazon.com listing and here for more information on the book, from my web site, gary-weiss.com.

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