The Hedge Fund Industry 2009 and Beyond: A Roadmap
Christophe Grünig and Marcel Herbst
Harcourt AG
March 2009
2008 will be long remembered as the year of the liquidity crisis. Within a few months, the competitive landscape of global financial intermediaries was reshuffled. With credit markets frozen, the main equity markets suffered decline of 40% or more and continue to display staggering volatility not seen in generations. The most visible early casualties of the crisis were the large independent investment banks. With governments in Europe and the US now being shareholders in a wide array of financial institutions, the financial world has changed for good. And it is reasonable to expect that more changes are on the way. These tumultuous times have a profound and lasting impact on the hedge fund industry.
With this article, we aim to provide guidance on the following: What are the prospects for the hedge fund industry; to what extent has the opportunity set for hedge funds changed; and what will our industry look like going forward?
2008: Diversification is NOT a Free Lunch
It is often said that “diversification is the only free lunch” on Wall Street. Well, the lunch tab in 2008 so far is staggering. With the exception of cash and perhaps government bonds, the year offered investors no place to hide. Traditional and non-traditional asset classes in both emerging markets as well as developed economies suffered greatly and across the board. The correlation displayed between sectors, styles, asset classes and geographies was almost complete. The liquidity crisis hit the core pillars of economic activity, namely credit and confidence, hard.
