Are small hedge funds (hedge fund news) set to thrive again? The great entrepreneurial burst of energy that created so many smaller-sized hedge funds before the financial crisis took root may be on the rebound.

Obviously, large hedge funds still have the edge. The regulatory climate and the new clout of big institutional investors continue to favor the bigger funds with track records that can offer more transparency when it comes to compliance programs and the like. But there's always been a sense that smaller funds offer more bang for the buck, not unlike small stocks.

So we shouldn't be surprised that sovereign wealth funds and pension funds are again backing start-up or small hedge funds, according to FRM Capital Advisors. Seeding specialist FRM said its portfolios "have raised a net $70 million so far this year--after raising very little in 2009," notes Reuters.

We just might see an exodus of talented managers and executives from the bulge-bracket firms who might be forced to divest some alternative investment operations. Who knows? We may be in for another golden era of hedge fund start-ups.

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