Reuters – Hedge fund assets will continue to shrink this year, falling as much as two-thirds from their 2007 peak, but investors will return and assets will rebound when the economy revives, Alex Ehrlich, global head of prime services at Swiss bank UBS, said on Monday.

Last year was the hedge fund industry’s worst ever, as asset values plunged and investors pulled out record amounts of cash. These trends, which forced hundreds of funds to close their doors and some to impose redemption curbs, are likely to continue this year before the industry rebounds, Ehrlich said at the Reuters Private Equity and Hedge Funds Summit in New York.

"All this proves is that the hedge fund industry is cyclical," he said. "But the idea of the death of the hedge fund industry is crazy. The industry will rebound, though it will not rebound to peak levels."

Ehrlich, who runs one of the world’s largest prime brokerages, said that in just the past year hedge fund assets have fallen from roughly $2 trillion to as low as $1 trillion.

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