A new study by Capintro Partners, analyzing the impact of the events of 2008 on the hedge fund industry, indicates that the crisis may have led to structural changes which could benefit hedge funds.

The report makes a compelling case for having hedge funds as a strategic long term investment within a diversified portfolio. Capintro Partners highlights five key changes in the industry:

1)      Assets in the industry have substantially declined due to investor redemptions, weak performance and flight to quality.  The reduction in assets allows for outsized positive performance due to reduced competition among hedge fund managers within the same strategy.

2)      The number of managers in the industry has also decreased, further reducing competition leading to wider spreads and an opportunity for larger gains.

3)      Hedge funds have historically outperformed post crises and have performed well preserving capital throughout historical crisis events.

4)      Hedge fund returns have varied more widely causing dispersion among manager returns to increase and correlation among managers and hedge fund strategies to decrease.  This allows for greater diversification benefits to investors and leads to higher risk adjusted returns.

5)      In order to attract new assets, managers are offering investors various incentives that may include access to closed funds, higher levels of liquidity, greater transparency and/or reduced fees.

Strategies that trade liquid securities and are able to take advantage of the volatility in global markets will be better positioned to outperform.  Capintro favors the following strategies for the remainder of 2009:

1)      Global Macro
2)      Arbitrage
3)      Equity Hedge

“It’s important for investors to realize that the current environment presents substantial opportunities for hedge fund managers and in turn for them.  Our objective is to help uncover these opportunities, specifically in the aftermath of the events of 2008 and the massive de-leveraging that took place within the financial system” said Mahmoud Al-Khawaja, CEO of Capintro Partners.