Pensions & Investments annual ranking of the world's largest hedge fund (hedge fund news) firms reveals that while the industry is healing from the financial crisis, it is healing in ways that are shaping a new industry. The No. 1 spot once again was taken by JPMorgan (JPM), which managed $53.5 billion in hedge fund assets as of Dec. 31 via its two units, JPMorgan Asset Management and Highbridge Capital. Bridgewater came in second, followed by John Paulson's eponymous firm, which trekked into third place from eighth.

That reflected some big downward moves in part by the likes of Farallon Capital Management, Och-Ziff Capital Management Group, D.E. Shaw Group and Goldman Sachs (GS)--all of which experienced big declines in assets under management. Institutional investors seem wary of the industry. Assets managed for institutional investors by the 11 largest firms fell 22 percent to $151 billion, about half of total hedge fund assets, down from $194.9 billion or and 62 percent of all assets two years earlier. Many institutions were indeed forced to redeem if they could, but few want out of hedge funds all together. Better policies and a good year may be enough to kick start more hedge fund allocations.

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