The Financial Times offered a snapshot of what to expect in 2009, as hedge fund managers returned to their offices after what has clearly been the worst year on record for hedge funds.
2008 saw losses hit 18.3 percent according to Chicago’s Hedge Fund Research. Record numbers of funds closed, investors yanked tens of billions of dollars – even out of funds that made money. Banks withdrew the cheap financing that fuelled so much of the boom in the past decade, and are now demanding higher margin requirements. Investors who are still interested in hedge funds want better terms and lower fees, as well as greater transparency. And to top it all off, Bernard Madoff’s alleged $50 billion Ponzi scheme has added to calls for tougher regulations and further tarnished the industry as a whole.
Experts at Barclays Capital and Morgan Stanley predict a shake-out for the hedge fund industry, suggesting that between 50 to 75 percent of funds will disappear this year. Yet others see what is happening as a necessary cycle, a Darwinian event that weeds out the weakest in the industry. According to FT, some of the world’s top prime brokers, hedge fund managers and investors feel that 2009 could see booming returns for the funds that survive. In fact, last year’s losses could make hedge funds look relatively more attractive, when compared to the 40 to 50 percent downturn many investors experienced with their equity portfolios.