Comment by Joy Dunbar, Editor of Absolute UCITS
Earlier this month an unhappy anniversary was celebrated.
Five years ago, on 9 August 2007, the credit crunch began. That
date began a chain of events. It started off as a lack of trust
between banks not wanting to lend to each other because they
did not know which of them were dangerously exposed to subprime
investments in the US.
Many other events have happened since then and are too numerous
to mention in this blog. But one of the most significant events
occurred more than a year later – the collapse of
Lehman Brothers – which heralded in a new era in the
hedge fund industry, which changed fundamentally during the
global financial crisis and after.
During this time, many investors ran collectively at once to
exit funds. This resulted in some hedge fund managers
'gating’ investors or 'side
pocketing’ portions of their funds (who knew what
a side pocket was before 2008?) – all of which served
to create a lack of trust and transparency in the hedge fund
industry. And then of course, to top things off nicely, the
Madoff Ponzi scheme was exposed.
The ripple effects of the crisis have been stark not just for
the hedge fund industry but for the asset management world
The macroeconomic environment has not supported a recovery back
to pre-2008 levels in the financial services sector –
instead, there have been volatile markets, a lack of liquidity,
heightened fear, the eurozone crisis and little growth in the
economy. All of which has resulted in investors being more
This has been compounded by increased financial regulation that
has resulted in operational costs increasing.
2008 has been be seen by some as the worst ever year for the
hedge fund industry – to some extent regardless of
performance (which was still much better than equities at the
time) – as hedge funds were also being collectively
perceived, rightly or wrongly, as profiteering from the fallout
of the global financial crisis.
Since 2008, the balance of power has increasingly swung towards
investors. There has been a drive towards more transparency, a
shift towards moving assets onshore, which has resulted in
UCITS-compliant structures being widely used. Only time will
tell if this has restored trust with investors.
Maybe on 9 August 2017, a decade after the start of the credit
crunch, we will finally know what the long term impact of the
credit crunch has been on the hedge fund industry and if
investing in hedge funds is still considered
'respectable’ for investors. However, the only
thing that seems certain is that more financial regulations
will become the norm.
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