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Because of
the private nature of hedge funds and regulatory disclosure requirements,
definitive data on the size of the market and number of hedge funds
is not readily available. Many estimates place the total number
of funds in operation worldwide at over 2,300 with some estimates
approaching 5000(3,5,10). The total assets under management
of the industry range between $140 and $250 billion (5,11).
Although
the US equity market with a total capitalization of over $6.8 trillion
(12) dwarfs the hedge fund market in size, hedge funds
have far surpassed the equity markets in recent growth. In the US,
total equity capitalization from the beginning of the 1980s
through today has grown at less than 13% (9). Hedge funds
on the other hand, have experienced 24% growth over the same period
(4,5).
According
to extensive research conducted by Dr. Philip Cottier and his group
at the University of St. Gallen ((5) , hedge funds entered
a period of accelerated growth in the early 1990s after a
few decades of relatively modest growth. The number of funds grew
tremendously from under 500 in 1990 to over 2500 in little more
than five years.
The growth
in hedge fund assets has paralleled the growth in number of funds.
The decade of the 1990s has seen a phenomenal acceleration
of growth in the hedge fund industry with new funds being formed
at the rate of some 42% per year while assets have increased at
the rate of 37% annually.
Exhibit
8
Growth of the Hedge Fund Industry
1960-1996

Source: Cottier
The asset
growth has come from new money invested in this class of investments
as well as internal growth from the reinvestment of returns. Asset
growth dipped slightly in 1994 due to relatively poor performance
of hedge funds and the market overall, as well as the high profile
failure of some large hedge funds such as David Askins Granite
Fund.
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