The meltdown in the technology sector of the late 1990’s totally revolutionalized the hedge fund industry as many Wall Street investors lost faith in the stock market as they watched their accumulated wealth wash away. Part of the problem was placed on Wall Street analysts many of whom continued to recommend stocks that have no sales growth, or in some cases no products to support their over valued stock prices. The role played by Wall Street analysts in the collapse of the technology sector through “irrational exuberance” according to former U.S. Securities Exchange Chairman, Alan Greenspan, could not be underestimated. Some of these factors contributed to the current exponential boom and growth occurring within the hedge fund industry.

As stock market investors flee the stock markets globally resulting from the collapse of the technology sector, many investors stayed on the sidelines with their investment assets that they were able to salvage from the markets. Other investors lost all their investment portfolios, and their confidence in the stock markets has been lost. At the same time, hedge fund managers were taking advantage of the declining stock markets through short selling strategies. Such strategy profits from falling stock markets. The global hedge fund managers were able to achieve consistent positive returns while the global stock exchanges registered double digit losses.

Another factor, which helped to drastically increase hedge fund assets, was the acceptance of hedge fund instruments by Institutional managers such as pension funds and endowments. Traditionally such managers have avoided hedge fund strategies because of their risky nature. But when hedge fund managers were attaining positive numbers for their investors, institutional investors began embracing hedge fund trading strategies. This factor alone has contributed to the exponential growth in hedge fund assets.

In 1994, the total hedge fund managed assets were recorded in tens of billion dollars, by the end of the decade of the nineties hedge funds managed assets exceeded US$ 500 billion. In 1996 an average of $57 billion was pumped into hedge fund management portfolios, however in 1997 hedge funds gained an unprecedented $US 144 billion.

By the year 2000, hedge funds managed over 1 trillion worldwide, and in 2006 hedge funds now control more than US$1.5 trillion.

Today hedge fund trading strategies have become mainstream investment strategies as Countries such as England, Germany, Singapore, Hong Kong, Japan and others in the Asia Pacific region continue to introduce new hedge fund rules making hedge fund trading available to qualified investors. Hedge fund growth is projected to continue to grow over the coming years, and hedge fund assets will continue to climb higher year in and year out according to hedge fund industry analysts

Paul Oranika

Editor-in-Chief

Hedgefundexchange.net

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