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Number of hedge funds to shrink in near future

One of the panelists at the conference, Thomas Kyle, chief operating officer of DTAP Capital Advisors - a global macro hedge fund manager in Connecticut - said that greater regulatory burdens will significantly increase the cost of launching a new fund. Alongside fewer firms entering the market because of start-up costs, panelists predicted increased rates of consolidation among managers as investors become more discerning about compliance standards.

“We will probably see a flight to quality - to those who do it better and to those who do it properly,” said Perry Beaumont, a managing director at Algorithmics – a Toronto-based risk management software vendor. Algorithmics co-hosted the event with New York-based Fitch Ratings earlier this week.

Michael Richard, a New York-based executive director in the prime brokerage group at Morgan Stanley, also foresaw a rationalisation among hedge funds; he said that within 10 years it was likely that firms with twice the assets under management currently observed in the market would have emerged, making good compliance all the more important.

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