Many hedge funds will be forced to close as market conditions and unprecedented regulatory change drive significant consolidation, according to Watson Wyatt.
Funds with highly leveraged positions on calls that have gone wrong, funds with poor performance and those that rely more on retail than institutional inflows are among the hedge funds that will be the most vulnerable to market conditions, Watson Wyatt head of investment consulting practice Graeme Miller said.
"There have been more redemptions from the retail sector than the institutional market," Miller said.
However, skilled hedge fund managers will emerge in a better position to take advantage of investment opportunities, characterised by greater market dislocations and lower prices, according to Watson Wyatt.
"It is our belief that the current crisis will expose those that are not structured to add value for investors and will provide the most skilled with attractive opportunities and potential for substantial returns in the future," Watson Wyatt head of manager research Hugh Dougherty said.
Institutional investors look set to benefit from more flexible fee structures.
According to Watson Wyatt, a growing number of skilled hedge fund managers are now open to negotiating fees with institutional investors as they realise the benefits of long-term capital provided by superannuation funds.
