Difficult recovery for hedge funds ahead
The recovery of many hedge fund strategies is likely to slow in the coming year as outflows from an overhang of redemptions are likely to continue into the foreseeable future, according to Man Investments last quarterly review for 2008.
Event-driven and relative value styles will be the slowest to recover in the future, according to the report.
Some positions that are still crowded could force more selling if the market stays weak or deteriorates, while the liquidity premium accessed through non-traded instruments, which have few exit strategies available, has now turned to a discount.
The idea of absolute or risk adjusted returns with little market risk has also suffered in the current market environment and it will be difficult for hedge funds to gather and keep assets in the future.
However, while the process of deleveraging in the financial system is making allocating risk capital extremely difficult, the authors of the report have estimated that it is reaching its final stages, and hedge fund performance will rise when credit markets improve.
Hedge funds were down more than 19 per cent in 2008. They recorded their worst quarter ever in the final months of last year, as every style except managed futures and global macro suffered double digit losses.
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