The Great Hedge Fund Restructuring of 2009

Mark Marxer............Redemption's are large everywhere, and several HFs (some very large) are likely going to shut down and PE firms are likely not going anywhere in the near future. Estimates range from 1/3-1/2 of the HF industry is in real trouble. The HF market is continuing to deal with an abundance of problems with high profile managers . The losses in the months of September and October and November have been disastrous. Performance has been driven by a number of factors, hedge funds deleveraging, short regulations changing, equity and credit markets imploding, prime brokers faltering, hedge funds failing, volatility spiking and crowded trades gone bad to name a few

Generically investors across the board from Tier 1 institutions to Fund of Funds have been reducing their exposures, pulling in risk and trying to raise cash and focusing on their own portfolios and assessing risk and resetting expectations. Some select top tier institutional investors are looking at Distressed, Credit, Commodities and niche plays and a few have dry powder and have stated the will be looking to redeploy when they get through a very difficult year end.

Although its to early to tell, it looks like investors are targeting new allocations for end of Q1,Q2 and will be deploying capital as they focus their attention from fire drill mode to the opportunity sets that have come out of this massive dislocation, managers that have done well navigating the storm and look to be in a position of strength going forward. I also believe that managers who were previously closed that are likely to reopen will be targeted by investors.

The Market and opportunity sets going forward are going through major restructurings right now. Alternative Asset Managers need to make the financial, operational and structural changes to survive and then put themselves in a position to thrive in the environment ahead. The large Banks and Financial powerhouses need to partner with the key players in the industry and help them solve and structure for the future, not just provide them cookie cutter products and services. The opportunities coming out of this structural change in business will be outstanding and those who are looking beyond the immediate crisis, who have the sustainability and intelligence to look through and get in front of structural changes will be handsomely rewarded.

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