Hedge Funds: A $1 Trillion Business?

Article excerpt

Estimating the size of the hedge fund universe is a tricky venture--akin to counting gnats around a porch light. Growth in hedge funds has been widespread and well documented and is one of the reasons cited by the Securities and Exchange Commission to register all hedge fund managers. A recently released survey indicates that that growth has accelerated.

Alternative Fund Service Review (AFSR) and Correctnet's biannual survey of hedge fund administrators estimate the size of the hedge fund universe at $1.16 trillion. They surveyed 39 hedge fund administrators with access to more than 8,000 hedge funds and fund of funds. While the trillion dollar level serves as a nice round number, more impressive is that the figure is up from the mid 2003 estimate of $745 billion.

The survey claims that other estimates of the industry have undercounted its size, but their figures correspond with other estimates when taking into account the double counting of fund of funds. Tremont Tass Research put the industry at $750 billion at the end of 2003 and its Director of Research Stephan Jupp says preliminary results have that figure above $800 billion at the end of first quarter 2004. Van Hedge Fund Advisors puts the industry at $820 billion and estimates it will surpass $1 trillion in 2005. The AFSR survey included fund of funds, which invest in single hedge funds strategies, separately accounting for much of the imbalance.

Despite the impressive numbers, hedge funds are growing at a slower pace than managed futures, which recently passed $100 billion. Tremont reported a 25% increase in money under management in 2003 and approximates first quarter growth in hedge funds at less than 10%.

Barclay Trading Group estimated growth in managed futures for 2003 at 70% and reports an increase of 20.9% ($18.1 billion) for the first quarter of 2004. Barclay does not estimate the size of the hedge fund universe because there are too many variables. "The truth is no one knows. It is a big guess," says Barclay President Sol Waksman.

Comparing index returns

                                March   YTD

S & P 500 Total Return Index    -1.51%  +1.69%
Lehman Brothers Treasury Index  +1.65%  +5.68%
Morgan Stanley EAFE Index       +0.16%  +3.75%
Futures Public Funds (March)    -1.96%  +4.20%

March's top CTAs

                                            March    YTD

Barclay CTA Index                           +0.43%   +5.05%
Barclay Sub-Indexes:
Agricultural Traders                        +3.91%  +11.21%
Currency Traders                            -1.10%   +0.72%
Diversified Traders                         +0.10%   +6.41%
Financials and Metals Traders               -0.01%   +1.60%
Discretionary Traders                       +1.29%   +4.64%
Systematic Traders                          -0.15%   +4.42%

More than $10 million under management
1. DynexCorp Ltd. (TETRA High Beta)        +20.86%  +18.59%
2. AIS Futures Fund L.P. (3x-6x)           +17.76%  +46.16%
3. ADM Capital (GI. Perspectives Fund)     +14.20%  +27.30%
4. AIS Futures Fund II L.P. (2x-4x)        +11.61%  +28.81%
5. DynexCorp Ltd. (Currency)               +10.20%   +8.72%

Less than $10 million under management
1. Sjo, Inc. (GI. Divers.)                 +39.66%  +80.89%
2. Dynasty Capital Partners LP             +23.84%   +5.19%
3. Lawless Comm. (60% Max Drawdown Acct.)  +22.40%  +35.38%
4. Kottke Associates (Swinford)            +15.66%  +21.55%
5. Strategic Investments (Agricultural)    +15.08%  +47.19%

Based on eslimates of the composite of all accounts under management;
does not reflect the performance of any single account.
Source; Barclay Trading Group Ltd., Fairfield, Iowa: (641) 472-3456

Futures public funds summary

April 2004                                 Number reporting: 102
                                           Average performance for the
                                             month: -6. …