The worst is not over in the hedge funds sector, with more collapses likely this year, according to the head of the Bank of America’s alternative investment group, David Ballin.
Ballin told this week’s Reuters Hedge Fund and Private Equity Fund Summit in New York that the hedge fund collapses would come as managers struggled to borrow the new money they needed to trade and in the wake of customer disappointment in the returns they generated.
“Some funds simply will not do well, particularly those specialising in fixed income markets,” he said.
Ballin said that the pressure for hedge fund managers was two-pronged with investors hastily handing in redemption notices to get their money out while bankers were getting stingier with loans after having to write down billions in bad debt.
“If this condition lasts for a long time then it could dampen returns,” he said.
Ballin said Bank of America had fired roughly 15 per cent of the hedge fund managers it uses and that if other large investors were also scrutinising their managers, this could hasten the pace of potential collapses.
