Figures can get confusing some times, but putting aside for a moment a recent Hedge Fund Manager survey declaring hedge fund assets under administration has crossed the $2 trillion barrier, the Hennessee Hedge Fund Advisory Group reports that the industry has grown 21% to $1.223 trillion. The growth, according to the firm, is attributed to 11% positive manager performance and 10% new capital inflows. The number of hedge funds also increased by 10% to 8,900, and since launching its index in 1987, Hennessee has generated annualized returns of 13.7% (net of fees and expenses), compared with 9.01% for the S&P500 Index during that period – and with about 37% less volatility than the S&P.

In other results, the survey found that:

• Individuals and family offices (including funds’ general partners and employees) accounted for 40% of the industry’s total assets, followed by corporations (18%), pensions (11%%) and endowments and foundations (8%), with 28% of the industry’s assets in funds of hedge funds.
• Average long exposure for hedge funds was 106%, while short exposure was -55%, indicating a low use of margin.
• Respondent hedge funds had an average gross exposure (longs and shorts together) of 161% and a net exposure (minus the shorts) of 51% -- the highest in the history of the 12-year-old survey.

The growth in the hedge fund industry has largely become a "zero sum game on the long side," says managing principal Charles Gradante, "since the capital is largely being reallocated from long only equity and bond managers to hedge funds." He went on to warn that the real growth concern for the future is "the potential difficulty maintaining historical short hedge ratios due to a supply shortage of stocks and bonds to borrow." Gradante says this will likely cause "a situation which will change the industry’s landscape, creating the need for a greater use of derivatives in lieu of the cash market to hedge portfolios."