Financial News Online US- The hedge fund industry is ripe for consolidation, particularly through acquisitions by larger rivals and financial institutions keen to strengthen or broaden their services, according to a survey.
The growth in the number of hedge funds and the amount of assets under management in the sector, estimated at between $1.5 trillion (€1.08 trillion) and $2 trillion, has fueled interest from traditional financial institutions, according to research by Rothstein Kass, a hedge fund consulting service.
Although two thirds of the 301 hedge funds that participated in the survey were from mid-market hedge funds, the remaining one third represented those with over $750m in assets under management. The larger hedge funds believe that many more will go public and will become too costly to run, and that the bigger ones will elbow out smaller rivals.
Last month’s credit wobbles exposed the vulnerability in the sector. Prime brokers increased their margin rates when hedge funds raced to borrow money to cover losses from redemptions as companies struggled to shift their funds away from highly leveraged positions. The margin increase was toughest on smaller hedge funds, with under $100m in assets under management.
Meanwhile, large financial institutions such as Morgan Stanley have been snapping up hedge funds.
