Challenges and Innovation in the Hedge Fund Industry: New Celent Report

All signs point to the continued institutionalization of large hedge funds. Institutional investors account for an increasing percentage of the client base of hedge funds and pension funds have accelerated their push into the industry. To meet the requirements of these investors, hedge funds have developed a much more mature business model.

Asset concentration among the largest hedge funds largely reflects the changes in capital sources. "Smart money"--endowments or high net worth individuals--are gravitating toward high-profile boutique funds launched by successful portfolio managers which have the potential to generate outsized returns. New money from pension funds is gravitating towards the large, established players with more developed administration and compliance departments.