Hedge Fund industry set for strong growth

"We would expect total assets under management to grow by over 15% over the next 10 years, resulting in a six-fold increase in market size," he added.

Dr Möller's remarks follow several years of impressive growth in the hedge fund industry, which has seen assets under management more than double in the past four years. According to hedge fund research group Tass, a record USD 72.2 billion in new money flowed into hedge funds in 2003. That has lifted the total assets under management by the industry to over USD 750 billion compared to USD 325 billion in mid-1999.

Much of that new demand came from institutional investors, and this trend is expected to continue as corporations seek to diversify their investment portfolios and reduce risk.

That strong growth has been coupled with continuous innovation, leading to an increasing diversity in the hedge fund industry, a trend Dr Möller expects will continue as the industry matures and investors become more sophisticated. This in turn will lead to stronger competition in the industry, with investors placing greater emphasis on managers' financial stability, product performance, service offering and business infrastructure.

The increased competition is also likely to lead to industry consolidation, particularly among fund of hedge funds managers.

Möller also warned that, in the short-term at least, "Capacity remains an issue for the hedge funds industry with demand growing more than supply." One of the core issues under discussion at the Dubai conference is measures to identify and nurture new hedge fund managers.

The two day conference, which kicks off today at the Jumeirah Beach Hotel in Dubai, has attracted the cream of the global and Middle Eastern investment communities, including such luminaries as Nasser Nabulsi, CEO of the Dubai International Financial Centre and Brad Bourland, Chief Economist at Samba Financial House.

Conference Chairman Antoine Massad, Head of Middle East & Asia at Man Investments, concurred with Dr Möller.

"The hedge fund industry is still growing and is in very healthy shape. We are seeing increased demand from institutions and new markets are opening all the time," he said.

Massad pointed to signs of growing institutional support for hedge funds. Most recently, Japan's USD 300 billion state employee pension fund has asked the government for permission to invest in alternative investment products, including hedge funds. Meanwhile, new fund rules in Germany are expected to open a hedge fund market worth about Euro 100 billion.

He also expects strong growth in the Middle East, where Man Investments opened its first office in Bahrain in 1985. "This region is a key player in our global business strategy," he said.

Explaining Man Investments' ongoing initiative in sponsoring the Dubai conference, Massad said: "Our role as a leading specialist dedicated to providing alternative investments does not stop with engineering innovative and customised products for our clients. Man has a commitment to create further awareness of the alternative investment industry, while simultaneously fostering its growth."