Opportunities in hedge funds

The Straits Times
Nov 14, 2008 | 5:15 PM
Opportunities in hedge funds
By Elizabeth Wilmot

THE widely-criticised hedge fund industry may be suffering at present, but it will open up opportunities for investment in 2009, said a chief investment officer of Swiss hedge fund firm Harcourt.

'For the short-term till the end of the year, it will be difficult. A strong deleveraging process has taken place, and there are redemptions. But medium-term, 2009 could be an excellent year. There are huge trading and investment opportunities,' said Mr Christophe Grunig on Friday.

One of the reasons which he cited for the positivity was less competitition, as hedge funds would soon no longer have to compete against powerful investment banks. That would in turn lead to more funds being open for new investors.

Another reason is industry consolidation. Mr Grunig said the number of hedge funds would shrink as it would be more difficult for small funds to exist. 'There's a natural selection, survival of the fittest, and there's a healthy consolidation going on,' said Mr Grunig.

Consolidation, he said, would raise the quality of the remaining funds - another attractive incentive. Another good point is that transparency for hedge funds has improved amid the recent furore in the industry, he added.

But there is a need to face the sobering present first.

Mr Grunig said that the on-going global deleveraging process is accelerating the risk of illiquidity.

'Selling securities in an illiquid market is very difficult and that will dominate the performance of hedge funds till the end of the year,' he said.

The credit crunch, which is leading to global recession, is also feeding market insecurity and making investors more risk adverse.