The dominant players in the rapidly growing hedge fund industry will be on opposite ends of the industrys spectrum, Donald H. Putnam, chief executive of Putnam Lovell NBF Securities, said at the ninth Global Alternative Asset Management Forum in Geneva, Switzerland. On the one hand, large, sophisticated firms with access to capital, and on the other, small, focused, talent-driven boutiques will dominate the space, Putnam said.
Speaking on a number of issues concerning hedge funds, Putnam cautioned regulators that more rules governing the products could have the unintended consequence of curbing growth of a product that has proven its rightful place in investors portfolios, particularly during this bear market. "Alternatives can and should mitigate negative returns and improve portfolio risk-adjusted returns," he said. "Hedge fund demand from institutional and high-net-worth investors has exploded during the bear market."
Hedge funds need to adopt practices to instill accountability and transparency. "High-profile failures and lack of transparency will inflame critics and worry investors. Regulators need to craft rules while tuning out demands for hasty conclusions," he said.
In a report last year, Putnam Lovell and New River Inc. predicted institutional and high-net-worth investors throughout the world will pour $800 billion of new money into hedge funds this decade, boosting assets to about $2 trillion by 2010.