GLOBAL - The hedge fund industry in the middle of a 'Darwinian' process which has altered the basis of the industry and radically changed the operating environment, an analyst claims.
"The landscape has absolutely changed," Gentile-Williams said, "although I wouldn't be bold enough to guess what a successful strategy would look like, the rules of the game are almost inevitably going to have to change."
He said there would be much less leverage used as it would harder to obtain and less desirable and a greater emphasis on managers reducing asset-liability mismatches.
However, Phil Irvine, co-founder of investment consultants PiRho disagreed, saying the situation was less severe than it had been portrayed: "It is the end of the game for the bull market period and the era of cheap leverage. It will no longer be so easy just to leverage up beta in one form or another.
"But the hedge fund industry is continually evolving. I wouldn't go so far as to say [some styles will become] 'extinct' but it will have an impact."
The worst case scenario, whereby chronic market uncertainty, falling asset values and widespread redemptions by investors over the next few quarters, would lead to a wave of fund closures, was overly pessimistic, according to Angus Murray, managing principal of Castlestone Management .
He said the largest problem would be in the multi-manager and fund of fund sector and, even there, the risks had been overstated.
"It's a precarious time for long-only multi-manager funds and fund of fund managers but I don't believe fund of fund managers will receive as many requests for redemptions as they currently fear. Investors do not have so many alternatives to put their money in," Murray said.
"[There's a] large shake out of the industry, with performance over this period separating the managers with better risk tolerance from the less well suited mangers. As a whole, as in any industry, there are probably some hedge funds that should not be in business."
Newton Investment Management's series of DC columns continues with Gerald D Rehn of BNY Mellon forecasting innovation in the market
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