Hedge fund investing will make a comeback but managers will need to address shortcomings in their business models in order to survive, according to a new report from specialist research firm Casey Quirk, prepared in conjunction with Bank of New York Mellon.
The research, the latest in a series which started in 2004, predicts that hedge fund assets will rise to US$2.6 trillion by 2013, from their bottom this year of about US$1 trillion. The previous peak was US$1.8 trillion in 2007.
The bulk of the increase will come from institutional investors, particularly in the US. The report estimates that institutional investors accounted for only 17 per cent of last year’s redemptions from hedge funds.
But in order to prosper the hedge fund managers need to have a foundation of strong alignments
“Hedge funds have to restructure fee models, liquidity terms and compensation, and align requirements with business needs across the four functional areas: management, operations, distribution and investments,” the report says.
“Funds of hedge funds will maintain their role as the primary hedge fund distribution channel, capturing almost 60 per cent of net flows between 2010 and 2013. Funds of hedge funds will likely oversee close to 50 per cent of total hedge fund assets in 2013, compared with 36 per cent in 2005 and 17 per cent in 2000.”