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the leverage to increase their positions and earnings. The low barriers to entry attracted entrepreneurs.

Whereas the United States—and in particular New York—had been the main center of activity, hedge funds have sprung up in other locations as well. San Francisco, Chicago, Atlanta, and Boston are homes to an increasing number of hedge fund managers.

European managers started to surface in big numbers in 1997 as long-only proprietary bank traders and fund managers left to start their own hedge funds. Contributing factors were bank consolidation in Europe, relaxation of Inland Revenue Service rules (tax laws), presence of U.S. hedge funds in London, and sophisticated European investors' appetite for locally managed alternative investments.2 The advent of the euro, consolidation, massive growth in merger and acquisition activity, dropping of borders, an increase in entrepreneurial spirit, tax reform, deregulation, globalization, new technology leading to improved productivity, and the relative attractiveness of European stock markets are other reasons.3

Today, there are an estimated 300 managers in Europe representing about $50 billion in assets. Many are long/short equity managers focusing on the European markets. Some are risk arbitrage managers; they tend to use less leverage, and have local expertise. Because many investors feel managers perform better early in their life cycles and these managers tend to take a different perspective and trade different markets than U.S. managers, investor interest in the emerging European manager is strong. The European manager provides diversification to the typical U.S. investor's portfolio.

The European managers, in general, have raised assets quickly. A number now have assets over $1 billion, such as GLG, Marshall Wace, and Egerton. In addition, European hedge fund managers are raising money so quickly that a number of them have closed to new investment. Just in 2000, Charlemagne, Lansdowne European Equity Fund, and Cross Asset Management stopped taking new investment.

A number of European banks have set up hedge funds, such as Dexia Asset Management, Compagnie Parisienne de Reescompte (CPR), SEB SA, and Credit Suisse First Boston (CSFB). A number of European asset management firms have done the same, such as HongKong & Shanghai Banking Corp. (HSBC), Henderson Investments, Gartmore Investment Management, Jupiter, Schroder, and Mercury Asset Management.