Hedge Funds – In a difficult environment how can the securities financing industry best serve their needs?

Some interesting views with some contrasting opinions made on the Hedge Fund industry in this session. A chart displaying the peaks and troughs of hedge fund launches showed that newcomers are shying away as Hedge Fund launches remain at record lows.

Speakers included Anthony Byrne, Co-European Head of Prime Finance and Global Head of Securities Lending, Deutsche Bank. Mark Harrison, Managing Director, Head of European Prime Brokerage, Citi. Lars Kroijer, Author, Confessions of a Hedge Fund Manager. Philippe Lopategui, Head of Equity Finance Prime Services Europe, RBS.

It seems that the turnaround of the industry is slow, despite the upward trajectory with a return to historic AUM levels being concentrated to large and established institutions. The panel agreed that smaller funds do not receive much exposure which adds to the issue of capital restraints.

Sentiment from the panel was less optimistic towards the statement that performance is set to improve and net inflows are expected to grow at nearly 4 times the amount seen in 2010 resulting in estimations that the industry is to reach $2.25 trillion by the end of 2011. Dr. Andre Stern, Oxford Asset Management, voiced that he is not very optimistic and growth expectations are not realistic. Also, that larger funds can suck up a lot of cash and do not face capacity constraints, resulting in the hedge fund landscape remaining similar. Mark Harrison, Citi added that unless there is a demand for alternative strategies, the growth estimates are very optimistic.

"Disclosure is a disincentive for high profile activist managers" said Anthony Byrne of Deutsche Bank and the rest of the panel agreed. The audience also engaged in the discussion by voicing that a large amount of resource and time is invested in research by hedge funds before positions in the market is made which requires capacity and returns which is meaningful.

A survey by Deutsche Bank with commentary from Anthony Byrne showed that 80% of hedge funds think that prime broker creditworthiness is the number one service that the hedge fund industry seeks. This also led to discussion of the multi prime broker model which came into play in early 2000. Mark Harrison posed the idea that access to balance sheet liquidity will move up the scale of importance in the coming future.