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Net Net: Promoting innovation and managing change

There are now more hedge funds than ever

A trader works on the floor of the New York Stock Exchange.
Adam Jeffery | CNBC

There are now more hedge funds than ever.

Investors have the choice of an estimated 10,149 hedge funds and funds of hedge funds as of March 31, according to new data from industry research firm HFR. That surpasses the previous high of 10,096 set in 2007 before the financial crisis. About 1,040 new funds launched in 2014, a net addition of 176 compared with ones that closed.

Total industry assets are $2.94 trillion, another all-time high, despite relatively muted single-digit returns from most hedge funds last year.

"Investors continue to turn to hedge funds, despite disappointing performance in 2014," said Eric Tedd, head of hedge fund research at Guggenheim Investment Advisors.

"They offer more attractive risk adjusted return potential than traditional asset classes," Tedd said in an email, noting relatively low bond yields and high stock valuations.

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The plethora of funds belies the fact that about 150 firms managing at least $5 billion in hedge fund assets control nearly 70 percent of the industry's total capital, according to data from HFR and HedgeFund Intelligence.

Ray Dalio's Bridgewater Associates, for example, was managing more in traditional hedge fund assets than anyone else, some $93.7 billion as of July 1, according to Absolute Return. The largest fund of hedge fund manager was Tom Hill's Blackstone Alternative Asset Management, with $66 billion as of March 31.

Total hedge funds and funds of hedge funds

Source: HFR (2015 data as of March 31)

The average hedge fund gained 4.19 percent net of fees in 2014, according to HFI. Performance varied widely by strategy, from investing in commodities to stocks to mortgage-backed securities. The gained 11.8 percent last year; the Barclays Aggregate Bond Index rose 3.47 percent.

This year, the average hedge fund is up 2.33 percent in the first quarter, per HFI, beating the S&P 500 and its 2.1 percent gain.

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That performance was strong enough to drive assets to record highs.

"Investors responded to the strong performance quarter by increasing allocations across nearly all hedge fund strategies, a trend which is likely to continue as global equity market volatility remains elevated, driving global hedge fund assets over $3 trillion by mid‐2015," HFR president Kenneth Heinz said in a statement Monday, noting industry capital flows and returns.

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