Financial Times – It is becoming clear that the hedge fund universe is set to shrink. The most obvious casualties will be highly levered funds, in particular the strategies that cannot justify their fees without that level of leverage, such as a number of arbitrage strategies.
In addition, depending on what further regulation is put in place, some of the more specialist funds could find themselves at risk (for example sector funds, or short only funds). Diversification could prove to be the key to providing protection from legislative changes, and in this regard, multi-strategy funds could become a more interesting prospect as they have the ability to allocate capital away from strategies that could be adversely affected by regulatory change.
