In 2004, there were only 5,000 hedge funds in the United States. Today there are over11,000 registered hedge funds in the country, representing a 120 percent increase in popularity for the alternative investment firms. Similarly, assets under management by the hedge funds in 2009 amounted to $1.15 trillion. This figure has more than tripled with Gareth Henry estimating that hedge funds now have more than $3 trillion in assets under management.
He further notes that despite the numerous allegations leveled against these hedge funds, some of which link the firms to the last financial crisis, investors continue to pour in their resources. The investor’s perception of the hedge funds and alternative investment industry is also changing. For instance, an average investor was only willing to channel 12 percent of their investments through the hedge funds.
This has, however, changed within the last one year. Today, investors are willing to trust these funds with 28 percent of their investments, just a single point behind the conventional private equity investments. But what can you credit to this sudden change of perception towards hedge funds? See more at bizjournals.com for more business news.
- Higher interest rates
According to Gareth Henry, most hedge funds record higher interest on investments than most other investment options. The fact that hedge fund investors have been constantly drawing more returns on investments compared to their counterparts invested with such other investment vehicles as equity and bonds make them more attractive.
- Ability to thrive in highly volatile markets
Gareth Henry points out to the hedge fund’s ability to go long or short on investment as the leading cause of the popularity the industry is currently enjoying. This implies that the firm can hedge their funds can survive and make profits even in the highly volatile markets, a feature that most other investment vehicles cannot afford.
- Changing rules of engagement
After the establishment of hedge funds, asset and portfolio managers demanded 2 percent of the invested asset value as compensation for their services. This made hedge fund investments highly unpopular. However, the fact that most firms and managers have scrapped this fee and base their compensation on returns on investment has drawn investors. Gareth Henry considers the investment incentive long overdue.