Hedge Fund Managers See Tough Year for Industry
Hedge fund managers are predicting a tough year for the sector in 2012.
A report by the consulting firm Rothstein Kass found about half of the 400 hedge fund managers who responded believed that 2012 would be a “a difficult or somewhat difficult” year for the industry. Almost 40 percent expressed concerns that the United States would enter a double-dip recession. Only about 32 percent of those who responded in 2011 thought it would be a rough year for hedge funds.
Political and economic uncertainty, tougher requirements by the Securities and Exchange Commission and brutal competition for investment dollars are among the challenges facing the industry in 2012.
About one third of those who replied indicated that they did not plan to use leverage when making investments in 2012 while about 52 percent planned to use less than 2-to-1 leverage this year.
“This business has always had higher leverage in its moniker,” he said. The decrease in leverage likely reflects demands made by investment banks and other lenders in this economic environment and tougher regulatory requirements.
Still, 66 percent plan to raise assets by at least 25 percent in 2012.
Raising capital in this cutthroat era is among the toughest challenges facing the sector this year: The study found 79 percent believe seeding was critical to a successful fund start, and almost 43 percent indicated they would be willing to lower fees in exchange for early-stage or seed capital.
“Capital has been going to the very large funds,” which makes it tougher for funds with less than $1 billion under management, Mr. Altman said. “Capital raising is a very large challenge.” He expects industry consolidation will play a role in the industry.
Meeting new S.E.C. requirements is also a major concern for hedge funds. About 52 percent expressed concerns about the scope and frequency of reporting requirements under new regulatory rules, and about 43 percent worried about having the staff and resources needed to comply with the new reporting requirements.
The report also found that women- and minority-owned companies were still a small segment of the industry. About 6 percent of the respondents said that their firms were owned or managed predominantly by women, while 10 percent reported that they were predominantly owned or managed by minorities.