(Bloomberg) — Hedge fund veteran Richard Perry's decision to quit after almost three decades betting on the success or failure of mergers and acquisitions couldn't have come at a worse time for money managers following comparable strategies.

Event-driven hedge funds speculating on corporate deals and restructurings are falling out of fashion, with investors withdrawing $31 billion from managers this year, the most of any hedge-fund strategy, according to data from industry tracker eVestment, and more funds are closing than opening.

Perry said on Monday that he is shuttering his flagship fund after years of losses and falling assets. Speculating on M&A is becoming too hard, with more than 200 deals worth $251 billion collapsing this year, after $1.2 trillion were pulled in 2015. Companies have spent $2 trillion on acquisitions in 2016, 14% lower than the same period last year, according to data compiled by Bloomberg.

There will be other people like Perry "who have run funds for 20 years, who have made a lot of money and they're sitting there thinking it's hard work, the returns are not as sexy as they used to be," Luke Ellis, chief executive officer of the world's largest publicly traded hedge-fund manager, Man Group, said in a Bloomberg Television interview. "When individual funds get too big, or when they get stale, or when they get lazy, to be honest the money will flow away from them."

FUND CLOSURES

Low returns and high fees are causing pension managers and other investors to shift allocations away from hedge funds to lower-cost smart beta products and ETFs.

A total of 37 event-driven hedge funds have closed in 2016, while only 29 started, according to data from Eurekahedge, while the HFRI ED Merger Arbitrage Index has gained 1.6% this year, less than half the 3.5% advance in the HFRI Fund Weighted Composite Index.

"Any form of active management this year has been incredibly hard work," Ellis said. That's because the flow of money into passive investments is "creating headwinds to stock selection," he said.

One of the highest profile deals to collapse this year came in April when Pfizer and Allergan agreed to terminate their $160 billion merger, bringing an abrupt end to the record health-care acquisition as officials in Washington cracked down on tax-driven deals. Halliburton and Baker Hughes also called off their $28 billion merger because it faced stiff resistance from regulators in the U.S. and Europe over antitrust concerns.

'DRAMATIC CHANGES'

"It's a sign of the dramatic changes in the investment environment that the kind of event driven strategies Perry was built on have become so difficult," said Christopher Rossbach, who worked in Perry's London office and is now chief investment officer at J. Stern, a money manager based in London and Zurich. "Risk arbitrage is picking up pennies in front of a steamroller as Richard taught me. There are not enough of those deals to go around and too many risky ones that break and lose money."

The finance industry faces up to 20 years of pressure on fees and will have to use scale and more automation, Ellis said at Bloomberg Markets Most Influential Summit in London on Wednesday. He declined to say how much he expects fees to fall.

Ellis, who replaced Emmanuel "Manny" Roman as CEO at Man Group on Sept. 1, still sees opportunities in stocks, apart from banks, because valuations have been "beaten up" repeatedly, he said.

"In a world of these very low rates, the reality is you start the year somewhat in the hole, so people have found it difficult to take the right amount of risk," he said. "You need to be very tolerant of swings in P&L, otherwise you really can't make any money in this environment."

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