As the domino effect from the credit crunch continues, it is becoming increasingly clear that many hedge funds will be forced to shut down due to the interplay of shrinking access to leverage, disappointing investment performance and investor demands for redemption.

This week, one of the most renowned hedge fund managers, George Soros, suggested that the industry could shrink by as much as two-thirds. Speaking at the Massachusetts Institute of Technology, the Soros Fund Management chief said: 'The hedge fund industry is going to move through a shakeout. In my estimation, it will be reduced in size by anywhere between half and two-thirds.'

If the hedge fund industry does suffer carnage on anything like this scale, managers will not be the only ones to suffer. New research from Tabb Group suggests that US-based hedge funds will cut total IT spending by 40 per cent to USD882m in 2009. 'Any software or service that directly supports the investment process stands a far better chance against this inevitable tide of cost-cutting," says the report's author, Cheyenne Morgan.

The weeding-out process is reaching out to all areas of the financial world and everyone connected with it. One can only hope that a brave new world emerges, shorn of the excesses and inefficiencies of the past few years, but there is still a lot of pain to come on the way.