Hedged definition

5 December 2017 By Richard Beales Follow @richardbeales1

Most peg the industry as managing more than $3 trln of assets. But as Winton Capital notes, it’s a broad spectrum, and hedge funds are hard to define. On narrower criteria like fees or the use of leverage they manage far less. The distinctions matter for investors and regulators.

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Winton Capital Management on Dec. 5 released research on the size of the hedge-fund industry worldwide. The firm considered different definitions of hedge funds, which according to sources ranging from the U.S. Securities and Exchange Commission to data providers like Hedge Fund Research and Preqin manage in excess of $3 trillion of assets.

Winton concluded that by narrow, stereotypical hedge-fund criteria – fees of at least 2 percent a year plus 20 percent of gains together with the use of leverage, short-selling and lightly regulated vehicles – the funds concerned manage only around $850 billion.

Reducing the fee threshold to one-and-10 and removing the other criteria encompasses some $2 trillion of assets.

“Any definition of hedge funds simply places them on the spectrum of the broader active management industry,” Winton concludes, cautioning against accepting simplistic groupings of funds. “One thing ... is clear: an industry managing $3 trillion − one that is lightly regulated and characterized by a two-and-20 fee model, low transparency, illiquidity, and extensive use of leverage – does not exist.”

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Reducing the fee threshold to one-and-10 and removing the other criteria encompasses some $2 trillion of assets.

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