LONDON’S 600-strong army of hedge funds is one of the fastest growing industries in Britain, sucking in tens of billions of euros of new business from across Europe.

Hedge funds managed out of London grew by 60 per cent to $190 billion (£100.5 billion) last year, making London second only to New York as a hedge fund centre, according to International Financial Services London (IFSL), which promotes the City overseas.

London increased its global market share of hedge funds from 15 per cent to 20 per cent, while its share of the European market rose from 70 per cent to 74 per cent. The capital’s dominance was due to local expertise, the proximity of clients, a strong traditional fund management industry and favourable regulation, IFSL said.

European pension funds, charities and endowments have followed the lead of rich individuals and are sinking growing portions of their portfolios into hedge funds. Productivity is spectacular. Employing just a few thousand people, Europe’s hedge funds made revenues last year of $13.2 billion and profits of $4.8 billion.

Hedge funds— a disparate collection of investment funds — take bets, often leveraged, on financial outcomes. The attraction to the investor is diversification — returns are usually uncorrellated with shares or bonds.

Hedge fund managers typically take a management fee of 1 to 2 per cent of the money they manage plus 20 per cent of any profits generated. This has produced vast personal fortunes. Noam Gottesman, founder of London’s biggest fund GLG Partners, is estimated to be worth £200 million.

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