A survey of more than 70 US hedge fund managers and their advisors has found that most have a broadly pessimistic view of the prospects in 2008 for the country’s economy, which 80 per cent
A survey of more than 70 US hedge fund managers and their advisors has found that most have a broadly pessimistic view of the prospects in 2008 for the country’s economy, which 80 per cent expect to be flat or in recession by the end of the year, while many believe the US Federal Reserve will be forced to raise interest rates rather than lower them further.
The survey by Kinetic Partners, which provides professional services to the asset management industry, found that most hedge fund managers believe the US stock market will continue to show patchy, uneven performance for the rest of the year.
Nearly three-quarters of those polled believe the Dow Jones Industrial Average will end 2008 no higher than 12,500 points, below the level at which it started the year. More than one-fifth were very bearish, saying the index would end 2008 around 10,500 points, a loss of 3,000 points for the year, although a quarter believe the it will gain ground and end the year at about 14,500 points.
Respondents say that economic conditions will force the Federal Reserve to keep a tight rein on interest rates, with 90 per cent believing that the base lending rate will end 2008 at either 2.0 or 2.5 per cent. Nearly half opted for the latter figure of 2.5 per cent, suggesting they believe the Fed will raise interest rates in the course of the year from their current level of 2 per cent.
The survey found that most hedge fund managers have a pessimistic view of the US economy, with more than 80 per cent expecting US economic growth to be negative or flat by the end of the year. One-third say the economy will be in recession, while nearly half expect neither growth nor recession. Just one-fifth forecast that the US economy will be show clear growth.
‘The hedge fund industry has suffered hard in the credit crunch, as asset values tumble and prime brokers put a choke on new financing,’ says Julian Korek, a member of Kinetic Partners. ‘Our survey suggests that the US hedge fund community sees no light at the end of the tunnel, and that the slowdown will continue.
‘Fund managers are looking for new ways to create positive returns. We have seen a large increase in the number of funds looking to cash in on distressed situations, whether there be sub-prime debt, litigation finance or turnaround operations. This is set to be a tough year for many.’
Kinetic Partners is a global professional services firm providing audit and assurance, tax, regulatory risk and compliance, corporate recovery and forensic services to the investment industry. Launched in 2005 as a one-stop shop for clients, the firm has operations in London, New York, Dublin, the Cayman Islands and Geneva.