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Future of Hedge Funds

Future of Hedge Funds

Q & A: Future of Hedge Funds

Future of Hedge FundsReporter Question: With both hedge funds and the large investment banks providing prime services to them both failing what do you think the future of the hedge fund industry looks like?

Answer: While times like this are painful for many investors and managers of hedge funds this type of "weeding out" is needed, at least some level for the hedge fund industry. Major databases report that there are between 7 and 10,000 hedge funds in existence. The number of hedge funds in existence is far greater than any of the databases report. There are thousands of hedge funds in Europe and America who have no need to register with a database, are seeding strategies or simply don't have the man power or knowledge to know that they should be listed within these databases.

As the number of hedge funds in the industry has increased over the past 7 years institutional investors have raised the bar in terms of minimum assets, track record and risk management checks which all must be in place. Naturally it has become more challenging to raise assets as there are more fund fighting to raise capital. This competitiveness along with the current volatility in the markets has lead to a constant push to create new investment models and strategies. During a bull market these strategies seem to perform well but it is not until times like these in which these new ideas and many old are re-tested.

These markets and the recent downfall of some hedge funds will do many things to the future of the hedge fund industry:
  1. Weed out the hedge funds started by those with minimal trading experienced based on momentum trades made during bull markets
  2. Remind us all of the importance of risk management procedures at both the business and portfolio management levels
  3. Encourage more hedge fund seeding and track record building before any active marketing is completed
  4. Shift more due diligence focus from general risk management questions to potentially more pointed questions, including worst case scenarios which have been played out through Bear Stearns and now Lehman Brothers
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Link to This Resource: Future of Hedge Funds

http://richard-wilson.blogspot.com/2008/09/future-of-hedge-funds.html

1 comment:

Deepak said...

I do agree with you sir,Hedge fund industry does require consolidation through tougher regulations by authorities and smarter due diligence from the investors and this crisis is an opportunity for this industry to find a new and robust base and regain its fading charm.

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