| Hedge Fund Observer: Hedge fund managers under institutional pressure |
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| 01/05/2006 | |
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The hedge fund industry is subject to institutional pressures, and this is leading to deep changes in its structure and its offer, according to McKinsey, the consultancy. More than everything else, says McKinsey, the barriers will fall between traditional fund managers and alternative hedge fund managers. "As they seek out ways to stabilize their capital base and future cash flow, many alternative managers are likely to expand into both traditional investment areas and other asset classes", points out McKinsey. "These players will be particularly drawn to the large pools of institutional investor assets that currently reside within the traditional long-only space." For this purpose, the consultancy expects hedge fund managers to launch what it calls "lower-octane" and higher capacity products that will better fit institutional expectations in terms of lower volatility and fees. The techniques, however, will not be affected, hedge funds will continue to use shorting and leverage. This trend is set to drag hedge fund mangers into the traditional asset management fold, and is also likely to provide an incentive for traditional asset managers to break into the alternative domain as they feel the heat of alternative managers. All in all, increased competition is likely to force a number of alternative players out of the market. McKinsey expects that the recent proliferation of hedge funds will "stall and then actually reverse itself by 2010." The end result, says McKinsey, will be a "barbelled" industry, with a concentration of small and large hedge fund players, with very little left in the middle: "We're already witnessing the beginnings of this phenomenon: the market share of the top 100 hedge fund providers now stands at close to 60 percent; and the largest firms are, as a group, growing assets at more than double the annual rate of their smaller competitors." J.L. |
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