The bane of our existence some days is the inaccurate association between hedge funds and managed futures in mainstream media and financial circles. We’ve covered the differences ad nauseam, but given the widespread nature of the association, a few pieces of commentary floating around the web today caught our eye, particularly because they may signal a reversal in the trend (and you know how we love our trend following). Larry Swedroe wrote on CBS News:

While reviewing the latest round of papers and articles on hedge funds, I was reminded of the film “Night of the Living Dead” — no matter how many zombies were killed, more kept coming back. In 2008, about 1,500 funds were liquidated and 500 launched. The next year, about 1,000 were liquidated, and more than 500 new ones launched.

It’s hard to argue against those numbers, but today, that merry-go-round of managers seems to be slowing substantially. Reuters reports:

The old picture of the hedge fund start-up as two traders and a terminal at a posh London address looks ever more dated as the risky financial environment makes jobs at bigger firms a safer bet.

A tough year for hedge funds and new bank regulations mean there is no shortage of traders looking to move on – just the sort who might once have started small funds.

But it takes more than ambition for would-be hedge fund managers to get the $100 million or so needed for a chance of success in a maturing industry with a more competitive landscape.

“A lot are going to established firms instead,” said Jeff Holland, co-founder of fund of funds firm Liongate Capital.

The reasoning for this change in direction? Reuters continued:

To found a start-up, managers need enough to cover costs and attract big investors wary of the smaller firms.

But only 17 percent of investors were ready to provide the seed capital that new funds need in 2011 compared to 53 percent in 2002, according to a survey by Deutsche Bank.

Even those that do provide seed capital avoid the 2 percent management fees that funds traditionally charge. They also often demand a large slice of a fund’s future revenues, making growth much less profitable than it once was.

It marks a reversal from a decade ago, when a couple of traders could set up in London’s West End and hope to grow into a multi-billion dollar firm using any of the varied and complex range of strategies that hedge funds are free to employ.

It also shows how big-name firms such as Brevan Howard, Winton or BlueCrest have come to dominate the industry.

In other words, investors are demanding more than the “hedge fund” title before they allocate, which has led to a downward spiral in the number of new hedge funds being set up to begin with – which is definitely something we can get behind. So, while Swedroe may have had a point from a historical perspective, today the hedge fund landscape is very different – and in more ways than one. You’ll notice that the big-name firms referenced in the Reuters piece include Winton and BlueCrest – both of which are managed futures firms. Maybe the bigger lesson here is that investors have started to figure out all the hedge fund hang-ups we’ve been lamenting… and are turning to managed futures for true diversification.