“There’s bound to be a shake-out of hedge funds after the credit crunch. There are a lot around … and it’s got a lot more difficult for them to stay in business,” Mark Brady, a partner at Eversheds who specialises in alternative investments, said in a recent interview.
“There are buyers around who are sitting on significant amounts of excess cash and are willing to look at smaller acquisitions. Hedge fund assets are still very attractive to traditional fund houses.”
The $2.5 trillion (1.2 trillion pound) hedge fund industry has seen its assets boom in recent years, with investors such as pension funds and wealthy individuals, attracted by the ability to make money in all market conditions, putting money with large firms and start-ups alike.
However, sharp volatility in credit and equity markets this summer — caused by fears a surge in defaults in the U.S. subprime sector will lead to a wider financial crisis — has proved a difficult environment for some, particularly in an industry where investors are quicker to pull their assets out if they fear large losses.
The average portfolio lost 1.53 percent in August after a flat July, according to the Credit Suisse/Tremont Hedge Fund Index, with some high-profile funds recording double-digit losses.
The industry has already seen acquisitions by more traditional firms — for instance, last year Schroders announced it was buying fund of hedge funds firm NewFinance Capital — and Brady said the motivation behind such deals is primarily investment talent.
