Hedge Fund Industry Meltdown? | One expert predicts a 30% Decline in AUM

Hedge Fund Meltdown?

Hedge Fund Meltdown? | 30% Decline in AUM?

One of the most frequent questions I keep receiving is, "What does this (the financial crisis) all mean for the hedge fund industry as a whole?" It is relatively straight forward to predict the short-mid-term consequences, but over the long-term I disagree with many. Some experts are predicting a 30% decrease in total assets under management within the hedge fund industry, others have been predicting for some time that the industry will disappear altogether. I believe with banks less able to take on the types of risks which hedge funds get paid to take, hedge funds will recover what has been lost and come out only stronger within 3 years of today. There will be funds closed, as they are always are, someone new will go to jail, and some investors will feel the pain of gating clauses but in the end hedge funds as a group are more diversified than banks, private equity firms or sovereign wealth funds. They will survive and thrive over the long-run.

Here's an excerpt from a recent story predicting a 30% decline in AUM within the industry:

In happier times, the bronzes in the window of WH Patterson’s gallery in London’s Mayfair would have been quickly snapped up. Their titles — Lioness Attacking, Lioness Stalking and Cheetah I and II — would have appealed to the hedge-fund managers who work in the area and fancy themselves as financial-market predators.

To them, the asking price of £10,000-plus would have been little more than small change; but those days have gone and the hunters are rapidly becoming the hunted.

A handful of managers in London and New York were forced last week to liquidate funds, including the flagship funds at MKM Longboat and Powe Capital, as investors demanded their money back. It is only the beginning.

Experts are predicting a 30% reduction in the hedge-fund industry — there are roughly 10,000 funds worldwide, and the industry is worth approximately $2 trillion. One broker said: “Small firms are bleeding. Assets are being sold off, investors are redeeming money and the managers are scuttling off to work somewhere else.” Read more...

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