Hedge Fund Assets to Hit $5.8T by 2018

(May 30, 2014) – Hedge fund managers will be responsible for nearly $6 trillion in assets under both management and advice by the end of 2018, according to research by Citi Investor Services.

The group’s fifth annual report into the state of the hedge fund sector found that many managers were expanding their reach away from asset management and into consultancy services.

“Investors are increasingly looking at hedge fund firms more as consultative partners to construct customized portfolios and capture new avenues of uncorrelated returns,” said Sandy Kaul, US head of business advisory services at Citi. “In addition, the industry as a whole is beginning to fulfill some of the roles that banks used to traditionally own.”

Citi’s report gave the example of some institutions—which traditionally have just invested in hedge funds—having built their own asset management arms and engaged in co-investment and direct investment projects.

“These investors have also built sophisticated risk and portfolio management platforms, which allow them to run analyses on position level information being fed to them by their underlying hedge fund managers,” Citi said when announcing the report.

In separate research also published this week research firm Preqin highlighted the increasingly concentrated nature of the hedge fund sector. According to its findings, the 505 largest funds with more than $1 billion in assets account for roughly 90% of all money invested in hedge funds. This is a much greater share than other recent research has suggested.

Despite managing $2.4 trillion of the $2.7 trillion in total industry assets, these $1 billion-plus funds account for just 11% of all hedge funds covered by Preqin’s research. This will bring another cause for concern for the smaller players struggling to gain traction, following last week’s report from Eurekahedge, which warned that smaller hedge funds face extinction if the biggest funds continue to rake in assets.