For all the abuse hedge funds take sometimes, it seems more and more the market can't live without them. According to the 2006 Fixed-Income Investors Study by Greenwich Associates, HF influence has grown in the past 12 months alone, to the extent that their trading volumes in those instruments, including bonds and derivatives, soared 200%, while the fixed-income industry itself saw volume rise only 25%. "As a result of their significant increase in fixed-income trading volume last year, hedge funds now represent an even bigger portion of the market," said Tim Sangston, a Greenwich consultant. Then he made this somewhat startling statement: "In several individual products, hedge funds provide so much liquidity that one could say that certain markets could not function efficiently without them." The figures speak for themselves: HFs generate 45% of annual trading volume in emerging market bonds, 47% of annual volume in distressed debt, 33% in leveraged loans and 25% of high-yield bonds, according to Greenwich. Most significantly, however, is HF presence in credit derivatives, which Greenwich says is "a natural area" for them given the leverage factor. According to the consulting firm, hedge funds accounted for 55% of the total credit derivatives trading volume in the past 12 months, with 60% of total volume in "flow" derivatives and one-third of structured derivatives products. "In many ways," Greenwich's Peter D'Amario says, "they have become the market." Which the consulting firm says could have negative impact on real money managers as they see trading volumes dwindle, and increase the fear that hedge funds increase systemic risk. One big benefit to hedgies, as they overwhelm the market, says Greenwich, is they "often get the best ideas first."