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by Beverly Chandler, Opalesque London:

Todd Groome, former advisor to the IMF, visiting scholar at The Wharton School and Chairman of the Alternatives Investment Management Association (AIMA) since 2009 is quietly confident that things don’t look too bad for the hedge fund industry.

"It’s been a tough year" he says of 2011. "Whether in the markets or in regulation – it’s been a volatile year. But I remain very optimistic, not in a cheerleading sense, but in a very real sense that the more volatility we have, I suspect the hedge fund product will benefit because institutional investors, now the main stream in our industry, are seeking higher quality/lower return profiles."

Institutional investors, says Groome, repeatedly say they want higher quality, lower volatility returns and investments that will outperform markets over economic cycles. "Lower volatility returns and also outperformance over economic cycles really means significant outperformance in down markets and preservation of capital" he says. "Hedge funds have clearly demonstrated that they can do that, even in 08 – when hedge funds outperformed broad markets in the third and fourth quarter."

That ability to work differently from mainstream investment markets is exactly what has brought hedge funds under the increased scrutiny of regulators. "I worry that because of increased marginal costs related to regulation, the institutionalisation movement in our ind......................

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