Van says hedge fund industry to hit $2 trillion by 2009, capacity will meet investor demand

According to Van, almost 40% of investments in hedge funds are made via funds of funds. Broad market-based strategies such as macro and futures currently have the most available capacity. Between 1998 and 2004, macro strategies had a 16.4% compound annual return, while futures-based strategies had a 17.9% return over the same time period.

Beyond established strategies, hedge funds are becoming more active in the energy, private equity, and real estate sectors. The hunt for unexploited profit opportunities is also prompting funds to become active in more unfamiliar territory, including: middle-market lending, asset-backed financing, exchange-traded funds (ETFs), and reinsurance.

George Van, Chairman of the hedge fund group said that his firm’s research demonstrates that “statistics belie the widely-held belief that hedge funds, generally, use large amounts of leverage.” Van’s analysis shows that 20% of hedge funds are not leveraged, and 50% use leverage equivalent to less than 100% of their equity. Among the most highly leveraged funds are those employing macro and market neutral arbitrage strategies; 60% of these funds had a leverage of two times, or higher.