Hedge funds coming out of the gloom
The Australian hedge fund industry shrank in 2008, with 21 hedge funds collapsing due to market volatility and a weak econ omy, according to data from EurekaHedge.
However, 10 hedge funds were also launched during the first three quarters of 2008, defying gloomy economic and mar ket conditions.
Dominic McCormick, chief investment officer at Select Asset Management, said liquidity issues, market volatility and deleveraging in the second half of last year were major factors causing difficulties for hedge funds.
However, McCormick said many of those factors have now lessened, partly due to a suspension of redemptions at the fund of hedge fund level and the underlying hedge fund level.
“The urgency and the panic of redemp tions and deleveraging has gone,” McCormick said.
Ankur Samtaney, a hedge funds analyst with EurekaHedge, said future econom ic uncertainty and volatility across mar kets, coupled with redemption pressures, may pose a threat to the survival of some smaller funds.
However, EurekaHedge is still looking forward to new hedge fund launches in the coming year, “given the large number of people who have moved out of investment banks”, Samtaney said.
Urs Alder, head of institutional invest ments at Man Investments, said while there would be fewer hedge funds in total, there were still funds being launched in areas like the distressed space and the leveraged loans space.
Only hedge fund man agers who can demon strate that they have the skills to make value in the current market will be able to gather capital to launch a new fund, Alder said.
McCormick said it would be “very diffi cult” to launch hedge funds in the current environment given the shortage of capital available and the scep ticism of investors.
The increased liquidity requirements of investors, platforms and advisers would also make it very hard to offer a lot of prod ucts in the future without “dramatic restructuring” and some hedge funds would choose to wind down and give money back to investors, McCormick said.
Alder said while some would alter their prod ucts to offer more liquid investments, hedge fund managers needed to pro tect their business by adjusting their liquidity terms to what was appropriate in the cur rent environment.
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