A Perfect Storm for Alternative Investment Sector

Date: Thursday, March 19, 2009
Author: Financial-Planning.com

Mohamed El-Erian, chief executive of PIMCO, an investment management firm with more than $747 billion in assets under management, says the alternative investment industry is in the midst of a perfect storm, according to a column authored by El-Erian and printed in the Financial Times.

El-Erian points out alternative asset management firms such as hedge funds -- once "prominent pools are capital" -- are finding it increasingly difficult to secure financing from traditional lending sources such as banks. Additionally, longer-term funding through such means as bond issuance and inital public offerings has become more difficult to come by.

El-Erian says the reputation of such firms has been damaged due to the restrictions or gates that many hedge fund managers have placed on investors seeking to withdraw capital from their investments.

"By locking investors in, not all the time but most of the time hedge fund managers are disingenuous. If I'm an investor and I want my money back, then it's not up to the fund manager to decide if he's going to sell" in order to satisfy the redemption request, one U.K.-based hedge fund manager who runs a multi-million dollar fund tells Investment Dealers' Digest.

El-Erian says he would not be surprised to see 50% of firms in the alternative asset management industry disappear over the next two years, either as a result of M&A or failures.