Some $600 billion has been ploughed into hedge funds in 2010, bringing the entire industry to around $2 trillion – and that isn’t far off pre-crisis levels.

As for the Japanese hedge fund industry, it used to have total assets of $45 billion. Now it has $14 billion.

Ed Rogers is the Tokyo-based CIO and CEO of Rogers Investment Advisors, which handles the Wolver Hill Japan Multi-Strategy Fund, a fund of hedge funds that currently invests in a dozen Japanese funds. This year it is up 5.3%, gleaning its positive returns from credit, CB arbitrage, event-driven and market neutral strategies.

Rogers is adamant that the Japanese hedge fund industry is not dying. “Absolutely not, it may not be thriving right now, but hedge funds will survive if they can make money," he says.

"There are ways to make alpha in Japan that you can’t elsewhere in other Asian countries, and that is due to an ability to implement sophisticated strategies that other countries’ markets are not sufficiently developed to permit. Japan is not a market for the beta player, but there are hedge funds that make double-digit returns.”

He points out that in 2009, a handful of about 20 hedge funds pulled in the lion’s share of new allocations. He predicts there will be a greater number of investors in 2011 and that they will be amenable to making allocations beyond that top tier of global funds. The investors he is perceiving as active are US pension funds and family offices, replacing European funds of funds, which have largely disappeared from the scene.

“Investors have about a zero to 3% weighting to Japan, and most of those investors are at zero,” says Rogers. “I think that range will widen to zero to 7% allocations to Japan, and that is because investors next year may want to find somewhere other than Europe and North America.

"Even if most investors still stick at zero, simply that wider range could result in the size of the Japanese hedge fund industry rising to $30 billion by the end of next year.”

So which funds are going to be the fortunate recipients? Rogers thinks it will be the larger funds, those of over $100 million in size currently. Japan has about 50 hedge funds of that size at present. They will show up earlier on the capital introductions screen and they are the ones which could be written a $10 million to $20 million ticket.

However, what hope is there for the funds that aren’t that big? He sees a way.

“There is a way that a smaller Japanese hedge fund can get capital next year. They just have to perform," he suggests. "A fund that puts up a 50% return in the first half of the year is going to appear on investors’ radar because it is doing so well. That will enable it to win some of those capital allocations even if it is not large in size at present.”

Smaller Japanese hedge funds risk dying on the vine when it comes to gathering capital, but for those who are hungry to get big in 2011, they will need to run hot in the next six months.