Investment Management

Investment pros handle some pretty impressive numbers. Adding everything up—mutual funds, hedge funds, private equity, and other types of managed funds, investment management firms worldwide had $139.9 trillion in assets under management at the end of 2024 (up from $98 trillion in 2022), according to the Boston Consulting Group.

Prior to 2007 the investment industry could be divided neatly into two camps: traditional managers and alternative managers. Traditional investment managers, such as mutual funds, bought securities they expected to rise in value. In industry jargon they are “long-only” money managers. Alternative investment managers (best illustrated by hedge funds) had the flexibility of “shorting” a stock, that is, buying common stocks they expected to decline in value.

Alternative investments, in the eyes of many investors, offered a cushion against portfolio losses in years when traditional “long-only” investment strategies produced flat-to-negative returns on investment. Gradually, the investment community became a little less bipolar.

The two opposing camps—traditional fund managers and alternative managers—found much to admire in each other’s strengths. Hedge funds across the United States, Europe, and Asia began courting the business of traditional fund manager clients—pension funds, government funds, and private endowments, offering the promise of better “all-weather” investment returns. By acting more like traditional fund managers, hedge funds were better positioned to offer more investor protections when looking at new opportunities like commodities or emerging foreign markets.

Traditional fund managers, not willing to sit idly as hedge funds moved into their territory and snapped up market share, reacted by acting more like hedge funds. Some traditional managers switched to a “long-short” strategy, giving them the added flexibility to play both sides of the market.

Alternative investments are the new “diversifiers,” as BlackRock, a major player in hedge funds and exchange traded funds (ETFs), observed in a client briefing. Starting in the mid 2000s, fund sponsors like BlackRock came out with a wave of product innovation to keep up with this shift in investor demand. Mutual fund complexes rose to the challenge by rolling out their own “alternative fund “options, which are classified as “long-short” funds. These funds have the option to hold a long position, anticipating rising stock prices, or “go short” (sell short, anticipating falling prices) on the stocks they believe are over-valued.

Investor demands for better investment performance was one of the drivers pushing growth in hedge funds. Investors demanded “all-weather” investment products—investments that typically didn’t move up or down in value as much as other parts of the portfolio when the market sold off following some bad news about the economy. During the 2008 financial crisis all types of securities plunged in value. A balanced portfolio of stocks and bonds (60 percent stocks, 40 percent bonds) failed to protect against losses.

Exchange traded funds (ETFs), low-cost funds similar to mutual funds, have been one of the biggest winners in recent years. “Demand for ETFs has grown markedly as investors—both institutional and retail—increasingly turn to them as investment options,” according to the 2025 Investment Company Fact Book from the Investment Company Institute (ICI). “In the past 10 years, net share issuance of ETFs has totaled $5.4 trillion. As investor demand has increased, sponsors have offered more ETFs with a greater variety of investment objectives. With $10.3 trillion in total net assets at year-end 2024, the US ETF industry remained the largest in the world.” ETF investors are typically younger and wealthier than mutual fund investors, which suggests that these funds will continue to increase in popularity.

The Investment Company Institute (ICI) reports that, in 2024, mutual fund companies managed $28.5 trillion in assets (including those of exchange-traded funds, closed-end funds, and unit investment trusts) for 126.8 million U.S. investors. Worldwide regulated open-end mutual fund assets were $73.9 trillion at the end of 2024 (up from $46.7 trillion at the end of 2018), according to the ICI. In 2024, the 10 largest firms managed 71 percent of mutual fund and exchange-traded fund assets (up from 46 percent in 2005). While assets under management continue to rise, the number of actively managed funds continues to shrink as fund sponsors liquidate funds and reduce the overlap in their fund lineups. Despite this trend, the U.S. mutual fund industry is expected to expand at a compound annual growth rate of 5.76 percent from 2026 to 2031, according to Mordor Intelligence, a market research and advisory firm. Growth in this industry will be due to projected increases in corporate profit and rising prices in financial markets.

Gaining favor with investors, along with exchange traded funds, were “absolute return” funds that tried to produce positive returns whether markets were up or down. Absolute return funds, managed similar to hedge funds, didn’t try to match the results of an industry benchmark, the Standard & Poor’s 500 index in the U.S. equity market for instance. “We see more allocators moving away from benchmark thinking,” commented one hedge fund manager.

Hedge funds and private equity were clear winners in the turbulent years 2000 through 2010, a decade when government bonds and corporate bonds easily trounced the investment performance of the U.S. equity market.

Exactly how large is the hedge fund industry? Until recently, it wasn’t easy to pin a hard number on the size of the industry. As privately managed pools, hedge funds were lightly regulated. That began to change in 2012 when hedge fund sponsors were required to report their ownership with government agencies much like publicly-owned companies. That meant registering their funds with the U.S. Securities and Exchange Commission—for the first time.

Investors and money managers alike came to the realization that alternative investments needed a more prominent place in their investment portfolios. The dot-com bubble of 2000, followed by the lingering slump in the U.S. equity markets and years of very low interest rates starting in the mid-2000’s, produced some terrific opportunities for hedge fund and private equity funds eager to scoop up undervalued assets at close to fire-sale prices.

Although the number of hedge funds has declined in recent years, total assets under management were roughly $6 trillion as of Q3 2025, according to BarclayHedge. This was an increase from only $1.8 trillion in managed assets in 2013.

In the United States, $215 billion was invested into 14,320 companies venture capital deals in 2024, according to the National Venture Capital Association (NVCA) 2025 Yearbook. At the end of 2024, there were 3,111 venture firms in existence, managing 7,969 venture funds. These firms had more than $1.2 trillion in assets under management. New commitments to venture capital funds in the United States increased to $76 billion, up significantly from $51 billion in 2019. Venture capital firms in the U.S. accounted for 47 percent of venture capital funding and 37 percent of deals. In contrast, U.S. venture capital firms accounted for 67 percent of global venture capital dollars and 61 percent of global deal count in 2010.