Any casual following of the financial news would reveal that hedge funds have experienced phenomenal growth, especially over the last fifteen years. In terms of numbers, there were an estimated 8000 hedge funds in 2005, up from only 500 in 1990. During this fifteen-year period assets under management have grown from an estimated $50 billion to $1.5 trillion. Moreover, the hedgefund industry has spawned a “fund of funds” business, which has slowly become the preferred way of investing in hedge funds, especially for institutional investors. Today, the number of these combination funds is estimated at about 4000.

Until recently, hedge funds have been popular primarily with high-net-worth individuals. While this is true even today (individual investors make up more than half of all hedge-fund shareholders), an increasingly larger proportion of hedge-fund investors are pensions, retirement plans, endowments, and corporations. As further evidence of the growth of hedge-fund popularity, Exhibit 2 reveals that the largest pension plans doubled their stake in alternatives, including hedge funds, over a ten-year period between 1995 and 2005. As a specific example, the March 22, 2006 issue of the Boston Globe reported that hedge funds account for 5 percent of total assets of the $40 billion of the Massachusetts Pension Reserves Investment Trust. The pension fund's board plans to increase that share to 10 percent by the end of this year.