According to a recent study of financing options for hedge funds by Standard & Poor's, the largest hedge-fund families manage $10 billion, $20 billion, and even $30 billion today, and at least 100 individual hedge funds have more than $1 billion in assets.

"Funds need to reach the multibillion level so they can access the broader range of funding," explained Charles Davidson, director in Financial Services Ratings at Standard & Poor's Ratings Services. Growth of assets size isn't the way hedge funds attract even more assets. A track record that lenders and investors can evaluate is also important.

By now, many hedge funds have a performance history dating back eight to 10 years. The ability to post impressive profits over an extended period raises lenders' and investors' comfort level. redemption restrictions that boost funds' liquidity also help in obtaining financing.

These factors have enabled hedge funds to expand their financing beyond the traditional choices of collateralized loans through prime brokers, investors' equity, and their own capital.
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