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Alternative Market Briefing

Hedge fund industry faces consolidation as performance wanes

Thursday, September 15, 2022

Bailey McCann, Opalesque New York:

The hedge fund industry could be headed for a major consolidation, according to panelists at the SALT Conference, which just wrapped up in New York. Significant asset outflows driven by underperformance are putting pressure on even well established funds. As a result, the war for talent is heating up.

Ilana D. Weinstein, Founder & Chief Executive Officer at executive search firm The IDW Group said that the hedge fund industry is in the "early innings of an industry correction and consolidation." She argues that much of what is left at many large hedge funds is founder capital. For these funds to rebound, performance will have to significantly improve which could take years.

Many funds were over optimized to market conditions before the pandemic and have had difficulty trading through volatility and rising inflation. Fund managers are repositioning, but for the largest funds that could take several quarters. Small and medium sized funds, which are more sensitive to large outflows, could have difficulty bouncing back. "We may see more funds convert to family offices," Weinstein added.

For the funds that do remain, not only will strategies have to adapt to the new market regime, but staffing may look much different than it has in the past. Ryan Tolkin, Chief Executive Officer & Chief Investment Officer at investment firm Schonfeld Strategic Advisors, said if firms want to remain in business over the long-term, they need to make ......................

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