HAVE HEDGE FUNDS OUTGROWN THE MARKET?

Hedge funds traditionally rely on exploiting market inefficiencies before other, slower-moving players can act. But with the recent growth in the hedge fund industry, strategies are becoming overused and arbitrage opportunities are drying up. Dalia Fahmy asks whether it’s time the industry was trimmed down to size

Since the massive bailout of Long-Term Capital Management in 1998, investors have poured about $600 billion into hedge funds, tripling the size of the industry in half a decade. Credit hedge funds, which are just beginning to catch up with their equity counterparts, have grown even faster. Every few weeks, it seems, a credit market maven leaves a prestigious bank or mutual fund for a small hedge fund, where nimble money managers can play the market unencumbered by the restrictions