Who will benefit from the new breed of hedge funds?

There's little doubt that the next big thing in hedge funds, the 130/30 funds, will make a fortune, but for whom? Simon Nixon reports on the latest developments in the industry.

People sometimes liken the current hedge-fund stampede to the 1990s dotcom mania. Certainly, I detected echoes of the internet boom at the hedge-fund conference I've been at in New York this week. Hundreds of hopefuls had gathered to hear advice on how to get started, network with potential investors and listen to pitches from various IT and other service providers. There was a buzz about the event from the start, thanks to an article on the front page of that day's New York Times, which claimed the top 25 hedge-fund managers earned at least $240m each last year, double the amount in 2005. The top spot went to James Simons of Renaissance Technologies, who earned a mind-blowing $1.7bn last year. Two others also earned more than $1bn. With that kind of money around, who wouldn't want a bit of the action?

But like the dotcom crowd, I fear most of these wannabe entrepreneurs are doomed to fail. For every one that makes it into the James Simons league, hundreds will fall by the wayside. That's because, these days, almost anyone with any credibility can start a hedge fund. The investment banks will do much of the work for you. They'll find you offices, sort out all the boring legal stuff, get you the IT and introduce you to hundreds of potential investors. But that's the easy bit. Unless you already have such a huge reputation you can raise many hundreds of millions of dollars on day one, it soon becomes hard work.

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Simon Nixon

Simon is the chief leader writer and columnist at The Times and previous to that, he was at The Wall Street Journal for 9 years as the chief European commentator. Simon also wrote for Reuters Breakingviews as the Executive Editor earlier in his career. Simon covers personal finance topics such as property, the economy and other areas for example stockmarkets and funds.