Third of Hedge Funds Face `Wipe Out' After Returns Sink, IGS's Godden Says

[marmar]

Third of Hedge Funds Face ‘Wipe Out’ After Slump, Godden Says
By Tom Cahill


Dec. 15 (Bloomberg) -- Almost a third of hedge funds will shut or merge after the $1.5 trillion industry posted its worst ever performance this year, according to IGS Group, which advises hedge funds on raising money.

“The failure rate is going to go up, the closure rate is going up, and the merger rate is going up,” IGS Chief Executive Officer John Godden said in an interview in London. “It’s going to be a 30 percent wipe out.”

The number of hedge funds more than tripled in the last decade to a record 10,233 at the end of June, according to Chicago-based Hedge Fund Research Inc. That number will likely tumble after funds dropped 18 percent in the year through November, the worst year since HFR started its Fund Weighted Composite Index in 1990.

IGS will team up with Grisons Peak, a financial advisory firm to start Alternative Investment Management Banking, a firm that will advise hedge fund managers on mergers. Godden and Paul Sullivan, a partner at Grisons Peak, will oversee the venture, with each firm contributing three to four employees. The firm aims to advise on six to eight transactions next year.

Hedge funds typically charge a 2 percent management fee and keep 20 percent of profits, while funds-of-hedge-funds typically charge 1 percent and 10 percent of profits. Profits are usually based on high-water marks that could take years to reach again.

Many funds may have been “cavalier” about actually charging management fees, giving rebates to large investors or distributors on the expectation the fund manager would more than make up the shortfall through performance fees, said Godden. .......(more)

The complete piece is at: http://www.bloomberg.com/apps/news?pid=20601213&sid=agmxqxRJfrCI&refer=home

[SoCalDem]

1. For a very long time, banks, people and companies did just fine

without all these exotic "financial vehicles"...

Banks paid customers 2-4%..and loaned that money to borrowers at 8-10%...people did not borrow more than they could afford to pay..banks saw to it that people could afford that house..on ONE income, so that in a downturn, they did not default..

People saved for things they wanted..they did not "charge" things..

Companies had investors who probably KNEW the owner(s) and who cared about the company's success..

Bosses were paid (or paid themselves) AFTER they had paid all the bills and determined what the profit was..