Life after death for hedge funds?

Nov 6th, 2008 | Filed under: Editor's Pick, Today's Post | By:
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Several pundits have recently pronounced the so-called “hedge fund model” to be dead (or at least “upended“).  But is the patient clinically dead, or is it just having an out-of-body experience?  After the recent trauma experienced by the sector, hedge fund administrators will likely play a central role in bringing the industry back from the other side.

Hans Hufschmid, the CEO of GlobeOp, one of the world’s biggest hedge fund administrators, recently told the FT that:

“There will be tremendous trading opportunities. We are seeing opportunities that we haven’t seen in our lifetime, just in terms of relative trading let alone directional…

“Convertible bonds are extremely cheap, there are mortgages that are extremely cheap and distressed assets that are extremely cheap. There are lots of opportunities that are ideal for hedge funds to take advantage of.

“Further, hedge funds will face less competition with investment bank proprietary trading desks largely disappearing from the market.”

In its coverage of VW-gate, CityWire also sees life after death for the hedge fund industry:

More…

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  1. The expression “tremendous trading opportunities” is a perfect illustration why the hedge fund industry has entered / is about to enter a confidence crisis. It is a prime example of what is called “overconfidence” or then a very nice illustration of a “heuristics” with potentially disasterous consequences.

  2. “tremendous trading opportunities” – Clearly with the intra-day volatility we have had in the past 15 months there are indeed tremendous trading opportunities.

    Of course profiting from this takes a special set of skills that aren’t easily “duplicatable” and not just anyone can run a hedge fund based on a high-frequency, short term trading strategy. Nevertheless, those skills absolutely (no pun intended) do exist and certain funds and CME members execute them exceptionally well – year after year after year.

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