Don’t be fooled by the turnaround in performance and lower redemptions posted by hedge funds in the early going this year. One analyst says there are more bad times to come, and that the industry won’t fully recover for another four years.
Hedge fund assets under management will fall by another 18.2% this year, according to Brad Hintz at Stanford C. Bernstein. Hedge funds will continue to lose assets into 2010, falling to less than $1 trillion globally before beginning the long, slow climb back.
What’s more, Hintz says that about one in four hedge funds with close within the next 12 months.
“The reduction in assets under management in the hedge-fund industry suggests that banks and brokers will book significantly lower revenues from these clients over the coming year,” he told Reuters.
Indeed, Hintz paints an even grimmer picture of the future for prime brokers than he does for their clients. As hedge fund assets fall, prime brokerage revenues will fall along with them, dropping 32%, while earnings will fall by more than half. But Hintz warns that this is “more than the challenge of simple cyclical revenue decline,” noting that the changes to the prime brokerage industry will permanently affect their structure and profitability.
Hintz also ventured to predict the “core of leaders in the prime brokerage market of tomorrow.” Led by JPMorgan Chase, it includes Goldman Sachs Group, UBS, Morgan Stanley, Deutsche Bank, BNP Paribas, Credit Suisse Group, Bank of America, Barclays and Citigroup.