PREFACE

It is our view that the hedge fund Industry is at a strategic inflection point in its life. Strategic inflection points are about the fundamental changes in any business. Mathematically, the inflection point occurs when the rate of change of the slope of any curve changes. After a few decades of modest growth, the hedge fund industry, since 1990, is experiencing a dramatic acceleration in its growth of both assets and number of funds. During this period, the industry has not only attracted a lot of media attention but also some of the best people and the most elite groups from the money management industry. In 1996, six out of the top ten earners in Wall Street were hedge fund managers.

In this report, we have attempted to analyze the fundamental changes that the hedge fund industry is undergoing and how the balance of forces is shifting from the old structure and the old way of doing business to the new. It is our view that you can not stop or hide from the structural evolution of an industry that is at an inflection point in its development. Instead, we must understand and focus on preparing for change. In this report, we have presented the industry’s past, projected its future growth and predicted its structural evolution for the next decade. Our hope is that this report can serve as an important milestone in the evolution of the hedge fund industry.

We would like to thank various people for their help in the preparation of the report. Fred Schlosser and Wayne Weil were extremely helpful in identifying the research materials and assisting us with many ideas and views of the hedge fund industry. We are also grateful to Steve Crosby of KPMG for providing us the guidance and encouragement throughout the work and Howard Hirschman of RRCM for his invaluable help in critically reviewing and editing the report.