The “back to basics” mantra for hedge funds was thought to mean lower fees, improved liquidity and better disclosure on exactly what the fund was holding and why. All that is happening. But what few counted on was deinstitutionalisation. Before the crunch, hedgies fell over themselves to attract money from endowments, pension funds and funds of funds; now many are thinking twice.

Industry assets under management soared from $490bn in 2000 to a peak of almost $1,900bn in 2007, according to Hedge Fund Research. Now, with industry assets climbing from a first-quarter low of $1,330bn, hedgies have curbed their exuberance. In its latest market report, GFIA, the Singapore-based consultancy, describes how managers are choosing to close new funds at relatively subdued levels, shunning the big-ticket investors who ran away during the crisis, leaving them with management headaches and an outsized cost base. Old-style hedge funds – a maverick portfolio manager on the edge of the business district, a couple of analysts and admin people, a few hundred million in assets – are back in vogue.

This is more than a fit of pique. Bigger is no longer better – especially with regulators in an increasingly vindictive mood. The US, for example, is considering a bill that requires the biggest hedgies ($10bn-plus in assets) to pay into a fund for rescuing failed companies ahead of mainstream fund managers ($50bn-plus). With management fees falling, meanwhile, the incentive to grow by furious marketing is not what it used to be. As long as Bernard Madoff remains behind bars, even the tiniest firm needs to demonstrate sound operational infrastructure and risk management. But the industry may polarise between the best investment firms and the best institutional houses. Hedgies will be vast leylandii or trim little privets – with not much in between.