Poll - Are Hedge Funds Doomed or Will They Recover and Thrive
Below please review the results of a survey question asking professionals both in and outside the hedge fund industry whether they believed hedge funds would recover and thrive in 2009, 2010 and 2011.
My vote is for the later. I believe hedge funds will becomes strong than ever by 2011
- Richard
Richard Wilson
Hedge Fund Group (HFG)
http://hedgefundgroup.org
Consultant at Hedge Fund Group (HFG)
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Eliot Smith
Market Maker: Human Capital
Hedge funds are the new I-Banks. Say goodbye to 2 and 20, but I for one believe that they are positioned to evade the comming regulatory maelstrom and over the next four years will outperform the market. Thats just my two cents though.
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Duncan Jones
AVP Senior Developer at JP Morgan
Falling markets and tighter regs will show if there is actually any alpha at all.
If there is then hedge funds will surely recover. If there isn't then they don't really deserve to... -
Maurizio Piglia
Director at S&I Savings and Investments Ltd.
Ditto!
The ones who deliver alpha, will stay, the others...will crash and burn. No one will cry. -
Daniel Liptak
Head of Research at Hatfield Liptak Advisors
If ever there was a case for hedge funds the current market highlights it.
Firstly, in complex markets, short sellers are akin to investigative journalists, looking for the scoop of finding an overvalued company or industry. Also like journalists, short sellers aren't always popular with corporate management or regulators.
Hedge funds managed to operate profitably outside the morass of mortgage-based securities. They are lightly regulated, in contrast with traditional investment and retail banks. This means that the least regulated financial institutions were the ones that identified problems in the most regulated parts of the industry.
Forensic accounting experts at hedge funds have performed the hat trick of being the first to signal, through short selling, troubles at Tyco, Enron and now Fannie Mae, Freddie Mac and banks.
Hedge funds and their short sellers deserve thanks for delivering information to markets. But alas, it's human nature instead to blame the messengers of bad news, especially when the news turns out to be true.
With my Australian focus I can add that while there will no doubt be an industry shake out in Australia similar to that which is happening around the globe, the good news for managers left standing is that there is a strong appetite for alternative investments. Institutional investors and their advisors are looking for quality alternative investments.
In these fear ridden times it is worth looking at the relative performances of hedge funds versus market indices. The HLA Aus Long Short Index was down 5.77% in Sep, which was pretty steep but compares well relative to other indices - HFN Long Short Equity Index (-6.57%), the ASX 200 Accumulation Index (-9.85%) and the MSCI World Index (-11.89%). The longer term performance numbers are very compelling for hedge funds and because they have not lost anywhere as much as long only investors are in a much better position to benefit from any future correction.
Therefore I believe that there is a strong case for hedge funds, perhaps a smaller universe in quantity and an increase in quality. -
Sumeer Kapila
Technical Analyst at Wachovia, CFA Level 3 candidate, Certfied Hedge Fund Professional (CHP) Candidate
Well i believe this is the perfect market for hedge fund area....There is tremendous opportunity in market to invest and sleep .By the time you wake up i.e. 2009 end or 2010 you have not even outperformed the market but you have given the new edge to this area.
Opportunity in a way you really need an eye for it...look for DIstressed securities, merger arbitrage wave is already there , natural resource is already oversold look for it...big speculation in FX Exchange market...
So in short, this is the time to get your investor confidence and act rather than sit.
Just my view.. -
Richard Wilson
Consultant at Hedge Fund Group (HFG)
Great comments, I agree with this being a perfect storm for hedge funds to position themselves and really taken advantage of the volatility, discounted securities, their short selling skills and performance fees to reward those with the best ideas who open a hedge fund.
- Richard
Richard Wilson
Hedge Fund Group (HFG)
http://HedgeFundGroup.org -
Eric Kata
Director Business development - Alternative Investment - RBC Dexia Investor Services
Hi, All. You are right, this should be perfect conditions for HF to perform. Did they perform? Not all of them, at least the good one will survive.
My questions then is about HF domicile. In the current market conditions and looking at the impact of this crisis on the real economy. What will be the reaction of politicians around the world? They are convinced that this is the right time to kill offshore places. Politicians are under pressure to find money for their budget. It could be good to see all that money sitting in offshores places coming back home??
What are the domicile of most the HF? offshore places! Will it possible for all of them to find more regulated environment if need be? -
Zenzo Lusengo
Founder and Executive Director , AMB Capital Limited . Head of Commercial Real Estate.
In the past year , it would appear that some of the hedge fund managers seem to have forgotten to hedge some of their positions.My sense is that the year 2008 will probably be remembered as the year of the "Hedge Fund Shake-Out" , with only the exceptional fund managers remaining and possibly MS and GS being more active in the hedge fund space as they won't be able to apply that much leverage onto their balance sheets as they are now bank holding companies . To try to answer the question , my opinion is that there will be less participants going forward ,however , exceptional managers (Paulson, Simons etc) will thrive.
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Andreas Steiner
Head Investment Risk Management at LGT Capital Management
Doom and recovery are currently equally likely, in my opinion. The next 3-6 months will be show whether there is a future for the hedge fund industry. If there will be cases of fraud surfacing or ugly legal disputes about small print, hedge funds will experience a loss of confidence similar to the investment banks, or "banks" in general. In case of a confidence crisis, hedge funds will become as stigmatized as for example CDOs.
The tale of higher volatility increasing alpha opportunities has been marketed many times already. It neglects that high volatility also increases the probability of being wrong from the viewpoint of the investor. As we have seen over tha last 12 months, higher volatility mainly increases dispersion of results. Given the zero sum characteristics of the alpha game, this will mainly lead to deteriorating hedge fund performance on a risk-adjusted basis in investor portfolios.
Personally, I believe that we are confronted with a gap between investor expectations and the product characteristics of real-world hedge funds. There are definitly issues with the promised "absolute return" features, redemption gates, side pockets and similar conjuring tricks are supporting concerns raised by investors in the past on several occasions. A forthcoming "Hedge Fund 2.0 industry" will have to address these issues.
The reason the current situation is called a "crisis" is that investors (and also money managers) are experiencing somthing which has been termed "fundamental learning": During this crisis, not only the industry will change, but also the perception of industry participants. This is the difference between a "crisis" and a "drawdown": eventually, recovery takes place, but the "world will look different and will be perceived differently" in the case of a crisis.
Another interesting question is what will happen to the "convergence theory": Due to excessive framing on median characteristics, traditional funds / traditional asset management is also experiencing an expectation gap. Welath management clients in all corners of the world are seeing their capital preservation preferences being trampled under foot. So-called "balanced" accounts are currently experiencing drawdowns of -20% (and the bottom is probably not reached yet).
Black swans, the Perfect storm, fat tails (on both sides), correlation breakdowns and reversals, contagion / unexpected transmission mechanims - all participants are undergoing fundamental learning in risk management topics. Personally, I hope that the current crisis will result in a general realignment of investment services with client preferences. It is badly needed, in the alternative as well as traditional part of the money management industry.
Just my two cents, unleveraged and not mortgage-backed ones, that is... -
Pierre Henri Moulard
▀▄▀▄▀▄▀▄▀▄▀▄▀ Managing Director at Natixis Alternative Investments and Owner, Zzz't Productio
I agree with Andreas comments on the gap between how Hedge Funds are (were) perceived and the reality of their characteristics when market conditions worsen and his hope for a general realignment of investments services with client expectations.
I also like his views about the convergence theory .
There is no doubt that most Hedge Funds are in trouble and will remain under pressure for a while. There is also no doubt, in my view that there was too many so called HF around these last 3 to 5 years and that not all of them deserved our attention as investors and their 2 and 20.
If something good must come out of this crisis, it is most certainly the fact that, at least for a while, investors will focus again on Hubris and Greed, and will pay a lot more attention to the "how" returns are achieved rather than the "how much".
One of the paradox (among many others) in the current environment, is that Banks have failed to finance the "real" economy and have left a large share of this role to Hedge Funds (e.g. ABL or other related strategies), and that regulators and governments around the world have forgotten that in a growing risk adverse environment the need for "conscious" risk takers is even more important, hence they try to save whatever they can save in a corrupted banking world and are stigmatizing hedge funds.
Now, going back to the initial question, I personnally do not think that hedge funds are doomed, but that the industry will shine again, probably as soon as the third quarter of 2009, of course the number of hedge funds will be reduced, and most of the survivors as well as the new ones will become more "institutionnalised".
I hope that we will see an increase in quality, but it will probably remain as difficult as ever to assess who are the good ones and the bad ones. Expecting an increase in quality is wishful thniking.
Another two cents, unleveraged and not "structured".... -
John Bennett
President, JWB Capital Management, Inc.
Huge fallout! Only the best funds with strong founders and loyal clients will make it (SAC, Tudor, etc.) I would say that any fund with less than $1 billion could fold if there performance falters, and there investors get nervous. Investors have to have a strong reason to believe in the fund and the management, or else they will opt out for cash
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Nicholas Barrett Begnaud
Alternative Investment Apprentice
Sorry, but Goddamn it's good to hear all of your level headed responses to the discussion. While I might just be exhaling a "pipe dream", I don't believe the market is an advantage for anyone right now, no matter how deep their pockets are or how good their track record/returns have been (exluding the short term, and the funds who have been seeing profits) as it is a market and there is money to be transferred. You shouldn't invest more than you can afford to lose, in regards to those "joe the plumber" investors, that think the market is similair to an atm machine, angred about the sell off's, and "no rules", and the other crap that you hear. Hedge funds, more particularly the managers of the funds, are afforded the deregulation and infinite ways of diversifying at the exact moment they are hired or are justified by financiers that think they make the right calls and will continue to due so. Hedge funds are far from being the cause or even a contributor to the economy, as most have fallen victim. Think back to a few months, or closer to one month, before the election, you told yourself the market would settle down and hoped the piece of mind would become contagious and the markets would "have huge up side potential", the markets have surely settled down and now are looking even greater as "upside potential" keeps growing. I'm not saying anyone thats out their trading, especially those who are flipping stocks like they used to flip houses (wich by the way IS a cause of whatever phrase we each give to the global economy at the moment), is crazy or an idiot, im all for seeing others realize gains especially now, that's got to be euphoric, "the thrill of victory, the agony of defeat", and I wish them the best. Im just saying that Oct 8th and 9th I believe when the market Crashed, I was eating fried chicken watching the slide and as I finished off a juicy salty breast a couple of seconds later and looked up at the tv I immediatley was waiting for whoever was on CNBC to referance the misquoting of the dow or my dvr or cable fucked up, It was an unbelievably humbling moment, as I'm sure you had similiar reactions. Greenspeak referenced it simply to a Tsunami, and as no animal died in the tsunami a few years ago, as they all sensed the forecoming disaster, we all did to we just could't admit it. The campaigns were a false support, a distraction, an excuse keeping responsible investors and fund managers from quantifiying a disaster or taken a glance at the slight decrease in oil over the year, along with the weakening of the dollar. Yesterday something connected with news from best buy and I became sick to my stomach, I finally felt, in the most shallow of ways, that the economy is not going to turn around anytime soon. Not just going off my gut feeling, the only thing I see amongst the confusion and frustration amongst investors combined with washington, then multiplied by the rest of the world is what will be wrtten in our childrens history books and one day explained to them by those of us who lived it. But enough of the pessimistic stuff, hedge funds aren't going anywhere, Im sure you each know or work for one yourselfs, I just got hired at one myself, mainly energy MLP's but I couldn't help but laugh when I found out we owned 3 Boeing 767's that we lease to Air Canada, how much fun is that, never mind regulation fuck greed and the most insecure and weakest among us that are driven by it. I'm trying to get rich as hell because I read the Robb Report and have been counting the days until I retire since I was around 2nd grade, though I hold myself to the highest ethical standards and I am my biggest critic, not always good, though it lets me have no hesitation in fullfilling my goals. Hedge Funds simply need to be run more resposibly and by those who know how to completley remove all financial thoughts and emotions of any amount, completely out of their head, actually leave them in their "pipe dreams" as the gentleman said earlier.
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Mrigank Sinha
Senior Associate at Ernst & Young, Bahamas
Hi,
I would anticipate tough times ahead for Hedge Funds, however, from 2010, we may see certain amount of recovery in the Hedge Funds Industy.
No doubt, that a number of Funds are liquidating, however, Funds with deep pockets and an ability to convince investors to keep their capital intact will come out of it. Lets not forget that the majority of investors in Hedge Funds are primarily institutional investors, pension plans, endowment funds or HNW individuals. These group of investors do understand the markets well enough and understand that these are probably the "Best Buying" times in the recent history. Provided that the investors do not have a liquidity crunch they would be willing to to let their capital sleep in the "hedge Funds" and wake up maybe 2010 when the markets have overcome the turmoil.
The dollar amount of fund liquidations during Q2 was larger than new fund launches by an estimated US$ 8.5 billion; the third highest level of fund closures on record. Despite liquidations, large funds appear to have attracted enough capital to grow the hedge fund industry at an organic growth rate (change in total assets excluding performance) of 11.1% in the last year.
This indeed reflects that the Hedge Fund Industy is not going to die down. Obviously, the Funds have been affected by liquidity crunch and under these circumstances they have been under increased pressure to liquidate their investments at throwaway prices in order to meet redemptions. This has primarily been the reasons for fund liquidations. However, the ones with deep pockets are gonna survive and come out with a strong absolute returns in the long run.
Regards -
Joaquim Pires
Consultant at Maybrook Saint James Ltd
The current crisis has changed dramatically the landscape of the financial world and hedge funds in particular. The massive redemptions have weakened the majority of funds and forced some to close doors. I believe that the money that has been withdrawn from funds will comeback gradually when the confidence is restored. However to make it easily HF managers need to rethink and redesign the risk policies.
The dead sentence often stated in the media for HF makes no sense. Is true that they will shrink - actually they already are - but they will not disappear. HFs play an important role in the world financial scene. They have been affected like other agents they have to rethink their strategies like any other agent but they will not disappear. -
Hedge Funds in Asia badly affected, as is ROW. Smaller outfits are closing shop in Singapore... more to come these couple of months...
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Richard McCullum Jr.
Principle Owner - SOCOM8 S.A.
Depends if hedge funds stay with tangible assets.....then YES like always!
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Avinash Bachate
Director/Fund Manager at Shilling Holdings,Independent Technical Analyst
HF are basically different from any other professional group like MF etc on one important parameter ie. Accountability.
Direct accountability leads to consistent focus on improvement, innovation and intelligence.
So I am with you.
Avinash
http://sagetrader.blogspot.com/ -
Brent Zimmerman, MBA
Co-Portfolio Manager Absolute Return Credit at Victory Capital Management
There will indeed be less hedge funds, but the basic premise of absolute return is how all money should be managed. Who came up with the notion of "relative" return and shoved it far enough down people's throat that as a society we believe this is the most efficient form of investing? If you invested $100 in the S&P 500 total return index at the beginning of this decade, it is now worth $92. If you had invested that same $100 in the HFRI fund weighted hedge fund index it would be worth $172. Hedge funds do not hedge all risks, if they did they would also hedge all returns. Rather they take educated risks on thoughout investment themes with the hopes of skewing risk/reward into its favor. The statistic above would indicate that on average, this has been accomplished. Academia and the uninformed news media wants to point out every negative possible about the "product set" whether factually based or not, but never take into consideration that most investors whom have been invested in a hedge fund for ten years are extremely happy with returns. You pick the long only stock index this year and its down 35-45%, while the average hedge fund is down much less. Yes, there are outliers in both cases.
This brings us to why capitalism works, and should be left to "fend" for itselt. Of course there will be 1/3 less hedge funds next year, but shouldn't there be? How many of these funds were never qualified to charge what they did anyway. 2009 and 2010 will be two of the best years to enter a new hedge fund investment that will rival the institutionalization of hedge funds in the 1980's. Hedge funds that are good at what they do will still be able to charge 2 and 20, and if you are good you should be able to.
The primary focus of the traditional asset management industry is on outperforming or replicating a market benchmark, no matter how poorly that benchmark has done. Safety of principal is not part of a standard relative return mandate. Which is quite ironic given safety of principle is an emphasis in the absolute return, where managers try to exploit an edge of some sort to make profits while at the same time attempting to limit the loss of principal.
I also find it quite ironic that hedge funds are criticised by nearly everyone besides long term investors for being opaque, and excessively leveraged. Banks on the other hand that are percieved as transparent, regulated, use much more leverage than hedge funds and recently lost half its market value as a sector while the average hedge fund lost 9% of its value.
Bottom line hedge funds will strive in years to come and should become a more predominant way in which people and institutions invest money. -
Robin Pandey, MBA
Managing Director, Financial Analyst, Trader
Hedge Fund Industry is riding the economic cycle, and it is riding near the bottom, and as soon as the market weathers the economic contraction, it will ride again toward the top. My speculation is that it will rise in 2010, and investors will line up to invest again.
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Shana Orczyk
Research Analyst/Assistant Portfolio Manager at Peak Financial Management
The hedge fund industry will thrive over the next few years, especially if there is a push for increased transparency, investors will be less afraid of them if they can better understand them. After the LTCM failure in 1997 the industry exploded. These markets separate the men from the boys, and hedge funds on average are out performing the broad markets by a huge margin. Plus the entire investment management industry is recognizing the value of alternative investments and new "alternative" 40 act funds are being launched everyday. There is a real appetite for these strategies, and 5 years from today we'll look at how well HFs performed in this environment and that will only fuel the fire.
Comments (35)
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Richard Bird
Senior Manager - Limited Brands
A more pressing question might be - "will hedge fund administrators recover and thrive in '09, '10 and '11". The number of players in the middle/back-office administration space supporting both single manager and fund of funds managers was already small (some might say miniscule). Those of us who worked in the back end know that the administrators are getting crushed right now. The revenue and profit generated from administrative fees is thin and fixed - and most of the admin firms required a healthy credit facility to operate efficiently. Consolidation is going to happen, but this raises potentially more problems.
No major player in the administrative end has enough horsepower to absorb substantial amounts of volume - mainly because both the technology, and the human capital expertise are expensive - and the function is complex (which would be why so many funds don't handle it themselves - they outsource it). Pick whatever fund you want, bet on whatever trading strategy you think will generate alpha - if you can't value, report, redeem and settle - the best fund in the world gets brought to its knees. High flying funds are already struggling with the global economic condition - the troops that handle the paperwork are in trouble too, and represent another major risk to the industry.
If you manage a fund that is sustained by outsourced services - do you have a plan on how to recover if that firm declares bankruptcy or collapses all together? If your service provider is a private company, do you even have any visibility into the financial health of that firm?
The coming (and already started) collapse of the fund administration and services outsource vendors is bad news for the industry. -
Sumeer Kapila
Technical Analyst at Wachovia, CFA Level 3 candidate, Certified Hedge Fund Professional (CHP) Candidate
Well i think its not prudent to standardised the whole hedge fund industry as one set and analyze/speculate the whole industry as HF Industry.
In my view the hedge fund is divided into various strategic segments like Long-Short/Global Macro/distressed /event etc etc...
The current financial turmoil is really giving a room to various strategies to grow and profit from them whereas on other hand its squeezing the gains from other strategies.
Really its about the strategies that HF Industry play with, that can decide the fate of the Fund either it doom or will zoom. -
Carole Freléchoux
Portfolio Manager / Analyst at Bank CIC |Switzerland| Ltd
As in any booming market, bubbles arise. Hedge Funds were created by managers unable to deliver appropriate performance, but gaining AuM because of the buzz around hedge funds since 2003.
I strongly believe that a lot of managers (alternative and traditional) will close their funds. "When the tide is low, you see who's swimming naked!". -
Logan Flatt, CFA
Investment Management
I hear and read of many fund companies closing shop after falling beneath their performance watermarks to the tune of -30% to -50%. It simply would take too many years before they'd see any performance fee compensation again. They are probably behaving rationally by giving up.
There were just too many hedge funds started over the past 8 years by managers who never should have been in a position to start and get funding for an alternative fund in the first place. The gigantic losses over the past three months are the forensic evidence industry watchers will be pouring over for some time.
We are witnessing free market capitalism and economic Darwinism alive and well. The industry will be stronger for its meritocracy and the fund companies left standing with true talent allocating capital will prosper accordingly. -
Alexander Benassi
Equity analyst interested in looking for new opportunities
I think this situation leads to many different potential outcomes depending on which direction the industry decides to take itself. Before working at a fund, I worked as a Financial Advisor to HNW individuals. Although these people were very wealthy, they were anything but "sophisticated investors." Also, the available information for the advisors to make truly informed decisions was not very forthcoming. I have met few advisors who truly understood the nature of these funds and how they operate. One post earlier mentioned the idea that they would prosper with more transparency, which I would agree with.
The issues that I see is twofold. The first is that funds are becoming more specialized in investment style, similar to what happened with mutual funds with the creation of the Morningstar style boxes. The early great hedge fund managers (Julian Robertson, George Soros, even Berkshire (not really a hedge fund but in many ways similar)) were able to profit in differing market conditions because of the flexibility they had to move anywhere they saw an attractive opportunity. I was amazed to see how our investors responded when I was at the fund when we would try to go into a market that was not strictly defined in the pitch book where we saw opportunity. Now I understand that many believe this intense specialization is a good thing, and I don't want to start an argument on that idea, but good or bad, I do think it limits the flexibility many of these funds were once known as having.
The second issue, which comes from lack of investor education, is the perpetuated myth of absolute return in any market. I'm not saying you can't make money in a down market, etc, but many funds I've seen had 25% returns with 6% vols because of how they were marking oftentimes highly illiquid assets. I do think this recent episode has pulled back the purple curtain that certain elements of the industry once hid behind. Perhaps realistic return expectations from investors is not such a bad thing.
That being said, I do think it will allow the true all stars to shine and they will excel, while many others fall to the wayside.
All that being said, I'm trying to figure this out like everyone else. I appreciate everyone's very thoughtful posts and insights. I am new to this group, but have already found the time spent reading everyone's views worth the efforts. Thanks for a great discussion all. -
Sunni Middleton
Relationship Strategist at Boom Bust Media
I expect hedge funds to survive, and normally I would say that the ones that do survive or sprout up will be better and stronger (survival of the fittest), but there's no telling what the potential government regulation will do to the hedge funds. The lack of regulation in hedge funds allowed them to take higher risk and as a result some were able to produce higher returns. The fact that hedge funds have had less regulation and can go long and short are some of the main reasons that investors want absolute returns from hedge funds. Yes - there are some who just think it's sexy to have their money in a hedge fund, but then they may not deserve high quality returns if they don't put enough of research and brainpower behind their investments.
Go by www.boombustblog.com to see high quality research and the phenomenal returns of the companies featured on the site. If hedge funds used BoomBustBlog research, they would be superstars in the midst of this current market.
http://boombustblog.com/index.php?option=com_myblog&show=Performance-update-for-the-week-of-starting-11-17-2008.html&Itemid=92
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Bernardo Vizcaíno, CAIA
Managing Director at Amsar Partners LLP
The HF industry will certainly survive, but not in its current form (if it does then that would be pretty sad). The fund managers out there need to be divided not in terms of strategy but in terms of who delivers beta and who delivers alpha.
This has nothing to do with fund managers, it has more to do with institutional investors as they have been hunting for greater returns by gradually creeping into traditional asset class territory (i.e. long-biased funds). If you think about it "institutional investor" is an oxymoron, what needs to be scrutinized is how these fellas account for risk and return, and what is the value they place - if any - on uncorrelated returns .
Investors don't mind paying 2 and 20 for true alpha, and in fact it is those beta products (the "expensive ETFs") that are leading the way in redemptions and fund closures. That is a good in terms of industry consolidation, but the side effect for the next several months will be that new good/proper managers will struggle to raise assets, regardless of how strong their proposition might be.
Will hedge funds recover by riding the upswing in equity markets? Will they thrive by attaching themselves to the next bubble? Plenty of beta products disguised as hedge funds will try to do just that (as they have done before). So the question is: will investors fall for it again or will they rethink their approach to alternatives? -
Michael Orecchio
Senior Analyst at KSA MidOcean
Hedge funds that are actually hedge funds will continue to thrive just like many are right now. Leveraged long-only funds that were calling themselves hedge funds are being eliminated - which is long overdue.
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Deborah J. Boyd
CAE/Director Funding Coalition
Hedge Funds are getting attacked because they are not regulated and people in government always attack things they don't understand and protect what they do understand. The real problem with the financial meltdown was #1 referring to non banks as banks and #2 unregulated people who did bond rating. In the case of #1 we should only refer to a bank as an institution that is insured to some extent. I also believe that the amount insured should be increased and that the capital required to be held in reserve be increased proportional to the increased coverage. So called "Investment Banks" should be renamed investment clubs or any other name but bank because despite the fact that there was probably some small print announcing that they were uninsured, fact is many people assumed they were because they were called banks. #2 is a by-product of the false assumption that deregulation is a positive thing. Once and for all we must collectively agree that it is not a choice between no regulation and all regulation. We need some regulation in everything that is public. I am also in favor of licensing anyone that has anything to do with other people's money. Even the wealthy should be protected from predators.
Breaking up mortgages that were marginal to begin with - junk bond status - and bundling them together, then dividing them again so as to rate them AAA is what I call a shell game and is an insult to all of us who do the right thing. It turned Wall St. into Las Vegas and then the house of cards fell in. Life is a gamble but we are supposed to learn from experience and in finance as well as in management we need to mitigate as much risk as possible.
Many of the Hedge Funds that I have worked with are similar to Venture Capital and they are better at making investment decisions than most "financial advisors". It is complicated to select a worthy project to invest in. I sometimes go through over 100 projects to discover one that meets the high standards that most of my investors want before they decide to invest. I don't think that judgment should change just because a company goes public. No matter how long a business has been functioning, the same things we look at for a new business should govern where we invest our money - what are their plans for the FUTURE. -
Douglas Rothschild
Managing Director at Agecroft Partners, LLC
There will be fewer hedge funds with less capital going after some of the best opportunity ever seen. Those that survive will cement their future but there is no question the hedge fund industry has played and will continue to play a vital role in the global economy.
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Andrew Park
Accountant at Marcum & Kliegman LLP
There is definately going to be a substantial shake-out in the hedgefund industry. In 2009, I anticipate many more funds will close shop and in the end, the ones that still remains will prosper. There will be a need for an investment vehicle for high network individuals and institutions.
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Luca Celati
Founder at Bletchley Park Capital Management
The very structure of your question summarises the current doom-and-gloom climate. That is welcome news to a contrarian, since such peaks in investors'pessimism usually precede market upturns. Accordingly, since hedge funds as a category tend to have a somewhat positive correlation with equity returns, I'd wager that a short-term relief rally may be in the cards to help. Structurally and long-term, I do not believe that ALL hedge funds will succumb, after all the world has always needed people to manage money and always will. Rather, there will be some strategies - particularly those that are less credit- and liquidity-dependent and those that emphasise tactical asset allocation - faring better than others. Furthermore, liquidity risk taking center stage once again means that there is no return to the pre-2007 business model of funding long term relatively illiquid positions with short-term funding plus leverage - Fund-of-HF included. I'd venture say that - not only in the alternative investment space but also in investment management as a whole, there will be a polarisation driven by how sticky one's capital base is. In practice, this means that value strategies will require sticky money (such as family offices or Warren Buffett-type investors), whereas, at the opposite extreme, those who have a more volatile capital base will be forced to concentrate into shorter-term strategies.
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sujit nakashe
Manager at GlobeOp Financial Services
This comment was deleted by the author
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Pushpak Tripathi
Financial Services Professional
There is no denying that there will be fewer hedge funds in the short to medium terms. While redemptions seem to be rife on the one hand, on the other hand there seems to be a growing investor appetite for innovative multi-manager funds with well-diversified portfolios and better risk-control, rather than the traditional long only hedge funds.
Also, at current volatility levels, the surviving funds are already shifting strategies with an increased emphasis on flow equity derivatives. -
T.K. Lin
Independent Investment Management Professional
Unless governments ban incentivized compensation, I don't see any problems.
There is no way that governments can ban financial trading.
Banning short-selling can be problematic, but no insurmountable.
There will always be hedge funds, no matter what, and those with the best price forecasts and strategies will survive, indeed prosper.
To learn more about hedge funds please review our free collection of videos on hedge funds here.
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