Many investors have been lured into hedge funds since it was sold to them as a "safe haven" or an investment that would not lose money in a bear market - like cash or bonds, but only at better yields.
Yet, as the ripple effect from the global credit crunch continues, it is becoming increasingly clear that many hedge funds will be forced to close due to the interplay of shrinking access to leverage, disappointing investment performance and investor demands for redemption.
George Soros, one of the most renowned hedge fund managers of all times, recently suggested that the industry could shrink by as much as two-thirds. Speaking at the Massachusetts Institute of Technology, the Soros Fund Management chief said: 'The hedge fund industry is going to move through a shakeout. In my estimation, it will be reduced in size by anywhere between half and two-thirds.'
If the hedge fund industry does suffer carnage on anything like this scale, managers will not be the only ones to suffer. New research suggests that US-based hedge funds will cut total IT spending by 40 per cent to USD882m in 2009.
Again, the weeding-out process is reaching out to all areas of the financial world and everyone connected with it.
Quoted from: Hedgeweek Comment, 30 October 2008, www.etfexpress.com