August 12, 2002

Startups May Be Slowing Down

NEW YORK (HedgeWorld.com)--The number of new hedge funds hitting the market continues to slide since its peak during the fourth quarter of 2001, according to the latest Freeman & Co. research report.

The 20% drop in individual hedge fund launches and 50% drop in hedge fund of funds launches estimated by Freeman may not be accurate since the figures are based on what the firm has been able to track so far. Even so the hedge fund hype may be slowing down, according to the research firm.

Freeman believes that more firms are abandoning plans to launch funds in favor of partnering with an existing player. The rapid growth of the industry is what may be preventing new fund mangers from building a top-10 or -20 firm without benefiting from a partnership.

The growth of the market, though slowing, is still providing opportunities to a close-knit industry of service providers. Freeman points to the entrance of two large companies, BISYS and State Street Corp., into the hedge fund administration business through acquisitions.

When Freeman began tracking service providers five years ago, officials didn't expect large firms to make hedge funds a major business focus. Now Freeman predicts that five years from now, hedge funds will no longer be viewed as an "alternative" asset class. This means that ultimately hedge funds may match the business of the traditional investing mainstays of large companies now becoming hedge fund service providers.

Reprints Discuss this story
This is where the comments go.