More than 1,000 hedge funds will close worldwide in the next few months, with most likely to be long...
More than 1,000 hedge funds will close worldwide in the next few months, with most likely to be long/short equity strategies, according to Arthur Samberg of Pequot Capital.
Speaking at the Borsa Italiana conference in Milan earlier this month, Samberg said the short-term outlook for hedge funds is almost as bleak as for the technology and telecoms sector.
'There are a lot of similarities between the two ' both have great long-term futures and are dynamic,' he said.
Having run long/short equity since the US group began in 1986, Pequot Capital is known for its technology expertise.
'It is hard to stay bearish on technology when it is something you love,' Samberg said, 'But there remain great reasons to be bearish. Valuations became ridiculously high in the late 1990s, leading to the collapse of the sector. While inventories are getting under control, there are still risks, especially as the debt in many companies is at absurd levels.'
Samberg argued the venture capitalists that backed many of the IPOs during the boom years of the late 1990s are now returning to companies that are growing slowly and becoming profitable before going to market.
Technology investment comes in waves based on optimism, he said, and he does not see it coming back to the sector for some time.
Much of the boom in technology revolves around PC demand, he added, something he does not believe will increase for some time yet as there are no new applications coming into the market.
'The problem with telecoms is that everything that could go wrong, did,' said Samberg. 'There is too much debt. Too much money was spent on third generation (3G) licences and no-one has accepted it the way it was anticipated and no real applications have been developed for 3G.'
As for electronics, he added, it is hard to see what will drive the sector forward.
Added to the bleak outlook is a level of volatility in the market he has never seen before, Samberg said, making investing even more challenging. This is having a knock-on effect on hedge funds, especially on long/short equity funds, as it has become difficult to achieve good rates of return, he added.
Long/short is where most of the growth in the industry occurred in the late 1990s, he noted, as with technology stocks, but the environment going forward is more challenging.
'It will be interesting to see where the next wave of successful hedge funds will come from,' said Samberg. 'It is also in a digestion period after a time of hyper growth.'
The industry is becoming legitimised, meaning growth is still going forward, Samberg argued, but he is doubtful over the level of growth.
Staying invested could prove lucrative
Consider lasting powers of attorney
Less environment, more governance threatens to undermine firms' green credentials
Evidence your compliance