In a Survey, Hedge Fund Investors Say They Expect Even More Withdrawals This Year
Hedge funds were staggered by a record level of withdrawals in 2008, but the worst is yet to come, according to a survey of hedge fund investors. Deutsche Bank found that more than a third of the 1,000 major investors it surveyed expect more than $200 billion to be withdrawn, $50 billion more than last year, the Financial Times reports today.
The growth in redemptions is the biggest challenge the fund managers face this year, according to the survey, which also predicted that more than 20% of today's active funds would be shut down by the end of 2009. Another challenge cited in the survey was demands by investors for greater transparency for the funds' strategies.
In a current Knowledge@Wharton article, several Wharton faculty members note similar challenges for the industry. "The hedge fund industry is really swooning at this point," Wharton legal studies and business ethics professor Thomas Donaldson said. "We're watching an industry whose bubble has popped."
He and other Wharton faculty added that an anticipated regulatory surge targeting various financial services is unlikely to spare hedge funds. Though the funds had little to do with triggering the global financial crisis, an argument for their regulation can be made by the interconnectedness of financial services. "The concern is that large pools of capital can contribute to systemic risk and systemic downturns. And that's a valid concern," said Wharton finance professor Marshal E. Blume. "Hedge funds have a large amount of money."