Although hedge funds’ earnings volatility will likely be higher and assets under management lower as the markets work through the current credit downturn, rated hedge funds are positioned
Although hedge funds’ earnings volatility will likely be higher and assets under management lower as the markets work through the current credit downturn, rated hedge funds are positioned for risk-adjusted outperformance and an eventual return to growth, according to Standard & Poor’s Ratings Services.
In a report entitled Under Fire, Rated Hedge Funds will Likely Retool and Rise Again, S&P says that rated funds have also been generally more prudent with their leverage, a factor its analysts believe has been instrumental in their survival.
‘Ultimately, a hedge fund’s endurance will depend on its ability to once again deliver the stellar, non-correlated returns they’ve been known to produce, along with increased transparency,’ says Standard & Poor’s credit analyst Chris Cary.
‘Those measures, in our view, could help to restore investor confidence and willingness to stay the course, especially if investors gain greater insight into strategies or more access to managers.’
In the current market turbulence, critics are blaming the hedge fund industry for contributing to market volatility and steep dives in equity share prices as they unwind positions to accommodate potential investor redemptions.
In the coming weeks, Standard & Poor’s expects to see greater scrutiny and potentially negative news coverage questioning the intent and integrity of the hedge fund community amid the broader deleveraging trend. Furthermore, hedge funds generally depend on financial institutions for their financing, the cost of which has increased significantly as banks have tightened their lending standards.
