Hedge fund industry to shrink, strategies to undergo change
The first two quarters of '09 will see hedge fund industry shrinking, hit by investor redemption and shutdowns of biz.
By Deeptha Rajkumar, ET Online |
MUMBAI: The year 2009 will be of global recession and deflation with market volatile to macro information flow, says Aureliano Gentilini, global head of hedge fund research, Thomson Reuters Lipper.
The first two quarters of 2009, in fact, will see the hedge fund industry continue to shrink, hit by investor redemption and shutdowns of some hedge fund businesses.
According to him, volatility trading will be one of the key investment themes through the year. ���Products such as variance swaps, developed to allow dealers and hedge funds to trade volatility, -as an asset class, might come to be paralyzed by volatility itself if markets are on a rollercoaster path,��� he said in report on hedge fund themes in 2009.
Cheap borrowing, availability of stock lending and other attributes, such as leverage, that characterized the hedge fund industry may no longer be forthcoming in the new era of tighter credit.
Going forward, as investors become fee-conscious and the traditional fee structure model of hedge funds comes under discussion, fee innovations are being introduced by hedge funds (both single-manager and funds of hedge funds) to retain investors.
The last few months of 2008 were witness to a change in relationship between prime brokers and hedge funds. Gentilini believes that one is likely to observe universal banks and fund management companies encroaching on the territory of the broker-dealers.
He maintains there is evidence a number of hedge fund strategies no longer work in the current market scenario and some of them might undergo critical changes. ���At the same time, we will observe a certain degree of convergence among strategies. Nevertheless, the risk/return profile of hedge funds will remain intact when compared to traditional market benchmarks,��� he added.
In the backdrop of mounting concern that the US Federal Reserve policy indirectly fuels a deflationary spiral whilst creating a liquidity bubble, strict due diligence standards is expected to be a key theme for hedge fund analysis among regulators and advisers in 2009.
���We will observe regulatory steps toward the introduction of an International Registry of Hedge Funds and increased transparency of alternative investment vehicles,��� Gentilini said.
The first two quarters of 2009, in fact, will see the hedge fund industry continue to shrink, hit by investor redemption and shutdowns of some hedge fund businesses.
According to him, volatility trading will be one of the key investment themes through the year. ���Products such as variance swaps, developed to allow dealers and hedge funds to trade volatility, -as an asset class, might come to be paralyzed by volatility itself if markets are on a rollercoaster path,��� he said in report on hedge fund themes in 2009.
Cheap borrowing, availability of stock lending and other attributes, such as leverage, that characterized the hedge fund industry may no longer be forthcoming in the new era of tighter credit.
Going forward, as investors become fee-conscious and the traditional fee structure model of hedge funds comes under discussion, fee innovations are being introduced by hedge funds (both single-manager and funds of hedge funds) to retain investors.
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The last few months of 2008 were witness to a change in relationship between prime brokers and hedge funds. Gentilini believes that one is likely to observe universal banks and fund management companies encroaching on the territory of the broker-dealers.
He maintains there is evidence a number of hedge fund strategies no longer work in the current market scenario and some of them might undergo critical changes. ���At the same time, we will observe a certain degree of convergence among strategies. Nevertheless, the risk/return profile of hedge funds will remain intact when compared to traditional market benchmarks,��� he added.
In the backdrop of mounting concern that the US Federal Reserve policy indirectly fuels a deflationary spiral whilst creating a liquidity bubble, strict due diligence standards is expected to be a key theme for hedge fund analysis among regulators and advisers in 2009.
���We will observe regulatory steps toward the introduction of an International Registry of Hedge Funds and increased transparency of alternative investment vehicles,��� Gentilini said.
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