Introduction
Global hedge funds have maintained a steady pace of growth building upon the strong gains seen in 2013, with new investor allocation activity totalling US$40.8 billion in the first eleven months of 2014. Combined with excellent performance-based gains of US$76.5 billion delivered by hedge fund managers, this puts the current assets under management (AUM) of the industry at US$2.13 trillion – another new high. The global hedge fund population now stands at 10,989 funds strong as at November 2014, seeing a net increase of over a hundred funds from the previous year.
Figure 1: Global hedge fund industry map
Over the past eight years the sector has witnessed varying trends – a period of tremendous growth, a major crisis and subsequent rebound. In 2006 total assets in the global hedge fund industry stood at US$1.54 trillion, managed by 8,694 funds. As the pre-crisis boom reached its peak in 2007, the industry’s asset base grew over US$400 billion to cross US$1.95 trillion by mid-2008, fuelled by strong investor inflows and industry profits.
The financial crisis in 2008 brought an abrupt end to this growth trend with assets falling to US$1.29 trillion by April 2009 due to performance-based declines and heavy redemptions by investors. In the aftermath of the crisis, strong rallies in global markets during 2009 and 2010 kept performance-based gains in positive territory and led to the subsequent positive asset flows in 2010, which aided the industry’s recovery. However, concerns about the global economy and the European debt crisis slowed this recovery in 2011 and 2012, although the industry did manage to grow by US$100 billion during this period.
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