The perfect storm of high volatility, withdrawals and liquidity problems that has hit hedge funds will soon subside, Man Group CEO Peter Clarke told the Hedge Fund World Zurich conference, Dow Jones reports. In fact, hedge funds could turn the corner as early as the second quarter of next year, Clarke said.
By the end of the first quarter, anyone who has to get out is out, and anywhere around there, I think we will see the beginnings of institutional inflows into the hedge fund community, he said.
Clarke also said that in light of the strong returns that hedge funds have enjoyed in recent years, this years difficulties are merely a temporary setback.
That said, Man Research Director Thomas della Casa said there will be large-scale consolidation in the hedge fund industry, with the number of funds shrinking by about 50% from its current 10,000 level to 5,000. The largest funds are the likeliest to come through this storm, della Casa said.
Through October, hedge funds have averaged declines of 15% year-to-date, while hedge funds-of-funds are down 19% in that timeframe, according to Hedge Fund Research.
Separately, Morgan Stanley estimates that hedge fund assets could fall as much as 45% by the end of the year to $1.1 trillion, down from $1.9 trillion in June, Bloomberg reports. This is a worse outlook than last month, when Morgan Stanley estimated a 32% decline to $1.3 trillion.