According to new research from TowerGroup, hedge fund assets will increase at a compound annual growth rate of 15% between 2005 and 2008, resulting in overall growth of 75% in hedge fund assets in that time.
Hedge funds have become the hot pick as more investors look for ways to outdo average market returns. And in the years to come hedge funds are going to become more mainstream, especially as institutions increase allocations to alternative investments.
The research highlighted that although the assets of hedge funds will grow, the actual number of hedge funds will stay relatively the same.
TowerGroup expects that by 2008, hedge fund assets will grow to over $2 trillion, with more than $2.5 billion spent annually on hedge fund administrative services.
"The changing client base of hedge funds, their use of multiple prime brokers, and increasing regulation by the SEC are all driving demand for better technology and transparency," said Matthew Nelson, analyst in the investment management research practice at TowerGroup and author of the research. "Fund administrators must quickly broaden their technology capabilities and service offerings to keep pace. At the same time, battle lines are being drawn as prime brokers push into hedge fund administration, and global banks acquire traditional fund administration providers."