Dire HF Prediction For 2008

Date: Wednesday, October 10, 2007
Author: Hedge Fund Daily

Growing discontent with hedge fund performance coupled with ever-increasing assets in the industry could lead to a “large number” of HF collapses in 2008, according to doomsayer Giles Conway-Gordon of San Francisco-based Cogo Wolf Asset Management. In an interview with Financial Times, Conway-Gordon said the industry is incapable of supporting $2 trillion in assets and many hedge funds could close shop as investors pull 25%, or $500 billion, from the industry next year. What’s more, he says those that die deserve to. “Hedge funds are supposed to avoid losses when things are bad, but there are very few that can break even then. I think a lot of them are not earning their keep.” The managing partner predicts, “There is going to be more of a focus on demonstrable results and track records that do not rely on 10-12 times leverage,” adding that in the next six months, the industry will witness “a very sharp Darwinian process. Things have been too easy for too long and I think cold winds are about to blow.” He also believes quant funds’ days are numbered. “We don’t believe in this quant stuff. It’s like using only the rear-view mirror and blacking out the windscreen when driving a car.” For his part, according to FT, Conway-Gordon invests only in hedge funds that are no more than twice leveraged and prefers fundamentally driven hedge funds. This approach accounts in part for his Cogo Wolf Global Strategy Fund returning 21.7% a year over the past five years. His success also derives from his commitment to emerging markets and commodities.