Private Funds: The Growth of Mid-Size and Large Hedge Funds

Our recent analysis of publicly available private fund data, including detailed private equity and hedge fund data, published by the Securities and Exchange Commission (“SEC”) revealed that SEC-registered exempt reporting advisers and private funds are perhaps the fastest growing segment of the investment adviser industry. In this follow-up post, we take a closer look at the hedge fund segment within the broader private fund industry. In particular, by using Form PF filing data, we analyze the relative growth in the number of mid-size and large hedge funds and advisers over the past six years from 2013 to 2018.

The Growth of Mid-Size vs. Large Hedge Funds

From 2013 to 2018, the total number of hedge funds advised by SEC-registered RIA firms filing the Form PF has grown at an 3.0% compound annual growth rate (“CAGR”) although growth has slowed in recent years. The hedge fund industry has seen growth both in the mid ($150 million to $1.5 billion in hedge fund assets) and large ($1.5 billion or more in hedge fund assets) fund size segments. From 2013 to 2018, the number of hedge funds managed by mid-size fund managers has grown at 2.4% CAGR compared to a 5.7% CAGR for large hedge fund managers. However, there are still 4.2x more funds managed by mid-size compared to large fund managers:

Source: Publicly available Form PF filing data available on sec.gov as of April 1, 2019. Note: Excludes exempt reporting advisers.

The Growth of Mid-Size vs. Large Hedge Fund Advisers

From 2013 to 2018, the total number of SEC-registered RIA firms filing the Form PF that advise hedge funds has grown at a 2.8% CAGR. There has been growth both in mid-size advisers ($150 million to $1.5 billion in total hedge fund assets under management) and large-size advisers ($1.5 billion or more in total hedge fund assets under management). From 2013 to 2018, the number of mid-size hedge fund-advisers has grown at 2.4% CAGR compared to a 3.6% CAGR for large hedge fund-advisers. However, there are still 2.2x more mid-sized than large-sized hedge fund-advisers:

Source: Publicly available Form PF filing data available on sec.gov as of April 1, 2019. Note: Excludes exempt reporting advisers.

Hedge Fund Advisers are Managing a Similar Number of Funds Over Time

As the chart shows below, from 2013 to 2018, the average number of underlying private equity funds managed by each SEC-registered RIA firm filing the Form PF that advises one or more hedge funds has remained relatively stagnant growing at a 0.2% CAGR:

Source: Publicly available Form PF filing data available on sec.gov as of April 1, 2019. Note: Excludes exempt reporting advisers.

Thus, it would appear that the growth in the total number of hedge funds is likely being fueled by a the creation of new hedge fund advisers registered with the SEC along with existing hedge fund managers forming new funds. From 2013 to 2018, the total number of hedge funds managed by Form-PF filing SEC-registered hedge fund advisers has increased by a total of 1,485 funds while the total number of Form-PF filing SEC-registered hedge fund advisers increased by a total of 262 advisers.

Be sure to check our our deep dive on the private equity fund industry and check back soon as we continue to provide additional analysis on the private fund industry.