The hedge fund industry is heading towards a consolidation where smaller money managers and funds of funds will soon be absorbed into hulking, multi-strategy advisers, according to a recent white paper from investment banker and Grail Partners founder Don Putnam.

Putnam, whose "Adapt or Die Trying: Darwinism and Intelligent Design in the Hedge Fund Industry" was recapped in a report this week from TheStreet.com, also contends that single strategy advisers are doomed and that wealthy investors will begin seeking boutique hedge funds in Europe. On the brighter side, Putnam thinks that pension allocations to hedge funds will increase by three-fold over the next five years and that IPOs will prosper.

Putnam's thesis has drawn decidedly pointed criticism from hedge fund managers, who are quick to note that the author's new Boston-based bank facilitated funds of funds acquisitions by GAM and UBS earlier this year.

"Look at his agenda," one funds of funds manager told TheStreet.com. "It's in his best interest to cry fire, so he can recommend those mergers."

Putnam, however, argues that he is in the perfect position to offer commentary.

"I've done so many transactions," he said. "When I tell you that very few funds of funds are going to survive you better believe me. Would you, for your elderly parent, pick a doctor who believes in euthanasia?"

Putnam offers several survival options, which includes taking a hedge fund public. Such a decision would save the fund's current management team and its investment strategy. Another alternative, he offered, would be choosing exclusively between retail or institutional.

"It will be hard to serve two masters in the platform," Putnam said.

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