海角大神

Yesterday I linked to Gabriel Sherman's sprawling in New York Magazine.聽 There was one particular quote about the hedge fund industry's own little mini-crisis - anonymous of course - that deserves a highlighting here as quote o' the day...

鈥淲e used to rely on the public making dumb investing decisions,鈥� one well-known Manhattan hedge-fund manager told me. 鈥渂ut with the advent of the public leaving the market, it鈥檚 just hedge funds trading against hedge funds. At the end of the day, it鈥檚 a zero-sum game.鈥� Based on these numbers鈥攖oo many funds with fewer dollars chasing too few trades鈥攎any have predicted a hedge-fund shakeout, and it seems to have started. Over 1,000 funds have closed in the past year and a half.

Sherman points out that there were 600 hedge funds in 1990, ten years later there were 4000.聽聽 Now there are almost 10,000, a few thousand more than anyone really has any use for.聽 The barriers to entry have basically disappeared (raise a million bucks, spend a third of it on admin stuff and you're in the game).聽 But all of the data says that the bottom half of the industry is starving - virtually all of the flows have been going to the biggest funds out there for a few years now.

When Sherman says that the hedge fund industry is just as overbuilt as the credit and housing markets were, I completely agree.