The hedge fund industry could well be the next big victim of the credit crunch, according to the Bank of England, which says in its latest financial stability report that in the wake of one of their worst quarters on record, hedge funds were having to sell off assets to meet redemption requests.

There is plenty of pessimism from within the industry, too. Last week Emmanuel Roman, co-founder of GLG Partners, predicted that between 25 and 30 per cent of the world's hedge funds could be forced out of business as a result of the crisis. 'In a fairly Darwinian manner, many hedge funds will simply disappear,' Roman told the Hedge 2008 conference in London. With early indications suggesting that losses this month could exceed those in August 1998, previously the industry's performance nadir, the mood among both most managers and investors s currently dark.

Roman also believes that regulatory pressures will add to the industry's concerns, although he doesn't seem too concerned about that. 'There need to be some scapegoats, and the regulators are going to go hunt people,' he says. 'That will be good in the long run.'

He's not the only one to believe that after the headlong growth of the past few years, a period of consolidation may be no bad thing for the hedge fund industry. Investors will be examining carefully which managers have succeeded in delivering acceptable returns through the crisis. These can look forward to substantial inflows of assets - but those without the required performance record should perhaps think about options outside the industry.