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It is our
view that the hedge fund Industry is at a strategic inflection point
in its life. Strategic inflection points are about the fundamental
changes in any business. Mathematically, the inflection point occurs
when the rate of change of the slope of any curve changes. After
a few decades of modest growth, the hedge fund industry, since 1990,
is experiencing a dramatic acceleration in its growth of both assets
and number of funds. During this period, the industry has not only
attracted a lot of media attention but also some of the best people
and the most elite groups from the money management industry. In
1996, six out of the top ten earners in Wall Street were hedge fund
managers.
In this report,
we have attempted to analyze the fundamental changes that the hedge
fund industry is undergoing and how the balance of forces is shifting
from the old structure and the old way of doing business to the
new. It is our view that you can not stop or hide from the structural
evolution of an industry that is at an inflection point in its development.
Instead, we must understand and focus on preparing for change. In
this report, we have presented the industrys past, projected
its future growth and predicted its structural evolution for the
next decade. Our hope is that this report can serve as an important
milestone in the evolution of the hedge fund industry.
We would
like to thank various people for their help in the preparation of
the report. Fred Schlosser and Wayne Weil were extremely helpful
in identifying the research materials and assisting us with many
ideas and views of the hedge fund industry. We are also grateful
to Steve Crosby of KPMG for providing us the guidance and encouragement
throughout the work and Howard Hirschman of RRCM for his invaluable
help in critically reviewing and editing the report.
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Rama
Rao
March 1998
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Jerry
Szilagyi
March 1998
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