VIEW-One fifth of hedge funds may fail

 

By Peter Starck

FRANKFURT (Reuters) - Up to a fifth of managers in the $1.6 trillion (1.1 trillion pound) hedge fund industry are at risk of going out of business in the next two years, a Man Group strategist said on Wednesday.

Thomas Della Casa, head of the research, analysis & strategy group at Man Investments, told a briefing in Frankfurt one in 10 hedge funds tended to fold after a few years even in favourable market conditions.

"The number will go down from 10,000. In the next two years 2,000 (hedge funds) could perhaps disappear," he said.

Overall, hedge funds are on track for their third ever year of losses, based on industry data going back 18 years, Della Casa noted. Hedge funds last failed to earn money for their investors in 1998 and before that in 1994.

"Assets under management will remain relatively unchanged, we don't expect net inflows," Della Casa said about prospects for 2009. Many investors are likely to go on shunning risky assets, preferring to hoard cash for quite some time, he said.

"Every dollar parked on the sidelines and held as cash usually stays away from markets for about 12 months. We don't expect this liquidity to return any time soon.

"The beginning of 2009 will be hard. We will still see liquidations and fire sales," Della Casa said, referring to hedge funds and their assets, such as corporate bonds.

Yet such conditions could create buying opportunities, he said.  Continued...