Hedge Funds Manage 1% of Global Assets, 25-60% of Global Trading

Just a good statistic taken from a recent report on the hedge fund industry put out by Dresdner Kleinwort (found via Barrons).

The authors point out that the roughly $1.3 trillion of assets hedge funds have under management represent over 1% of all the world's financial assets, but with leverage, the proportion may be greater than 3%, or in certain asset classes even higher. Their influence in global markets is much, much greater, thanks to their feverish activity and liberal use of leverage, whether via derivatives or margin.

On the latter score, U.S. hedge funds shoulder two-thirds or so of worldwide margin debt, or something in the neighborhood of $300 billion. Truly staggering, furthermore, is the Dresdner Kleinwort estimate that hedge funds account for between 25% and 60% of the trading in global major markets. And, we're reminded, it's the marginal trader that makes the market.

According to the analytical pair, transaction costs run to a not inconsiderable 4% of the assets managed by hedge funds, while manager salaries and performance fees take another 4%-5%. By any measure, that's one big nut. And it means, Stalmann and Knips reckon, that hedge funds must generate returns that average 20% a year. Which is neither a modest return nor an inevitable one.

Comments

[Sr. Pessimist:]

Well, I guess, depending on who you're stealing it from, robbing from the rich and burning the loot is better than the rich instead robbing the poor and getting to keep the loot. When, summer 2006, I made analogies between 1929 and 2006 with an educated man at a coffee shop, he told me that hedge funds comprise the majority of stock trading. Here are the numbers to prove what he said to me. Well, those after nothing but quick profits will get what they were asking for. Try going after a hedge-fund dude for the $10 million he lost you. Try putting him in prison because of what he did to produce any return at all. Try bankrupting him and forcing him to cough up the $10 million from somewhere. He'll do the same he'd be doing without his hedge fund job- drawing empty pockets inside-out from his pants.

2007 Feb 12 10:01 PM