Managers at HF Conference in Monaco Grapple With Challenges Ahead

(June 18, 2010) — Managers attending the GAIM hedge fund conference in Monaco focused on the problems facing their business as concerns over the health of major economies continue to dominate markets.

The hedge fund industry will see significant challenges — changes to investor behavior, distribution dynamics and compensation structures — over the next five years, said Yariv Itah, a partner at investment management consultant Casey Quirk, in a presentation that was used this week in a keynote speech at the GAIM conference, obtained by ai5000.

According to Credit Suisse/Tremont, hedge funds suffered a 2.73% loss in May, representing the biggest loss since November 2008 and heightening fears over a prolonged period of volatility. Yet, high net-worth individuals and institutional investors, primarily in the US, are returning to the asset class and hedge fund assets may well reach the $2.8 trillion mark as early as 2013, Itah said in his presentation during the conference.

Even though pensions in particular have become increasingly comfortable with hedge funds as an intrinsic part of an active portfolio, fueling industry growth, concerns still dominate following the 2008 recession. “The hedge fund industry has not fully recovered,” Ross Ellis, vice president of marketing and client experience at SEI, said to ai5000. “Investors are going back in but they’re doing more due diligence, demanding greater transparency and insight into managers’ investment style and philosophy.”

Executives attending the conference also expressed fears over more stringent regulation, particularly in regards to the European Union’s plans to regulate managers and the possibility of a widening of Germany’s ban on naked short selling. “The hedge fund industry is going to be the subject of some really rash and nasty and intense regulation,” Rick Sopher, chairman of fund of funds LCH Investments, said to Reuters.

According to HedgeFund.net, total industry assets were about $2.3 trillion by mid-April.