Hedge funds are set to undergo a major shakedown, with the number of funds worldwide to fall, according to HFA Holdings chief executive Spencer Young.
The current market volatility will cause consolidation of the hedge fund sector, as fund-of-fund managers and individual hedge fund managers jostle for survival, Young said.
"We have long held the view that not all hedge funds are investment grade or have a sustainable business model in the longer-term, and we suggest that current market events will cause the industry of individual hedge funds to rationalise - from maybe 10,000 funds to approximately 7,000," Young said.
"We see this as a necessary and positive maturing of the industry, with those who deliver acceptable returns in this market environment being positioned to do well in the industry, post this market crash."
Young's comments come as HFA subsidiary, HFA Asset Management, records positive returns for its International Shares Fund.
In the month to October 24, 2008, the MSCI World ex-Australia index lost 26 per cent of its value, while the HFA International Share Fund had a relatively stable return of -0.92 per cent. This represents an outperformance of approximately 25 per cent for the month, Spencer said.
The result was due to the rigorous due diligence undertaken by the HFA group's global research team, he said.
"Our strict investment process has restricted the fund's portfolio of individual hedge fund investments to approximately 20 funds, out of the industry-quoted 10,000 hedge funds operating around the globe," Young said.
