Higher Hedges
Hedge funds took in $60 billion in net assets last year, nearly four times the gain of $16.3 billion in 2002, according to preliminary estimates by Tremont Capital Management’s TASS Research.

“What we have seen is that flow follows performance,” says Stephen Jupp, director of quantitative research at Tremont Capital Management. The CSFB/Tremont Hedge Fund Index shows that hedge funds gained 15.44 percent in 2003, compared to 3.04 percent in 2002. 

TASS Research estimates total hedge fund assets as of the start of this year to be between $725 billion and $750 billion, distributed among 6,700 hedge funds, of which 1,700 are funds of funds. In 2003 there were approximately 5,000 to 6,000 funds, including 1,250 funds of funds.

Morningstar to Track Hedge Funds
Morningstar, the research firm best known for tracking and rating mutual funds, plans to start a global hedge fund and private partnership database. It will include data on investment strategy, performance, portfolio managers and operations for participating funds.

“One of our goals in creating this database is to help make the hedge fund industry more transparent to all investors,” says Joe Mansueto, chairman and CEO of Morningstar. “We believe hedge fund data will benefit all types of investors—sophisticated high-net-worth individuals, more risk-averse financially savvy institutional investors, and new investors who may be considering using hedge funds.”

As Morningstar researchers compile the data, however, they also will be trying to determine a way to make the database available to the full spectrum of investors. Because hedge funds can be offered only to accredited investors and their advisors, the company is still developing the appropriate safeguards, says product manager Ryan Tagal. Also not in the immediate offing is the five-star rating system that has made Morningstar the last word on mutual fund performance. “It is way too early to determine if and when we’ll develop a rating system for the hedge fund database,” Tagal says.

Morningstar reports it has received an enthusiastic response from hedge fund managers, traditionally a tight-lipped bunch. “There is a sense in the industry that this database could make hedge funds more institutional,” says Tagal, “not the secret-society investment they have been for a long time.” He estimates the initial number of hedge fund managers willing to participate in the database to be in the hundreds.