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Number of hedge funds could halve in 09

Date: Tuesday, October 14, 2008
Author: Svea Herbst-Bayliss, Reuters.com

Turmoil in financial markets could halve the number of hedge funds by next year, and the survivors will likely charge less for their service, an industry executive said on Monday.

Ultra-wealthy investors, who fueled a doubling in hedge-fund industry assets to about $1.9 trillion in the last three years, are now increasingly fearful about hedge-fund failures and pulling their money out, fast.

"I think people are nervous," said Robert Elliott, senior managing director at Bessemer Trust, a New York asset manager that advises clients with at least $10 million in assets.

"They have seen noteworthy blowups and don't understand them," he told the Reuters Wealth Summit. "Hedge funds could be the next hiccup and people could say this is another example of poor regulation."

Already hedge funds are facing calls to return money to clients after the average manager lost roughly 10 percent this year, marking the industry's worst-ever performance.

Looking ahead to next year, Elliott said the number of hedge funds may be reduced by half. "If we have roughly 8,000 hedge funds now, we might see 4,000 by the end of next year," Elliott said, adding that many managers simply won't be able to attract enough money to keep going.

"I think we will see some people giving up fees to keep capital," Elliott said. At the same time, managers might also shorten the amount of time that they demand investors to leave their money with them.

While many fund managers now ask clients to leave their money with them for two to three years that may be shortened to a year or less, Elliott said.

(Editing by Jason Szep, Leslie Gevirtz)