PREVIEW-May losses cloud hedge fund summit in sunny Monaco
* May's losses raise fears of further volatility
* Fund managers more positive as clients return
* Costs, regulation may drive further M&A
By Laurence Fletcher
LONDON, June 14 (Reuters) - The European hedge fund industry's top brass meet in glitzy Monaco this week for their annual summit, after a turbulent May that has taken some of the shine off an industry recovering from its worst ever crisis.
Executives such as Man Group (EMG.L) CEO Peter Clarke, whose firm last month unveiled a $1.6 billion takeover of GLG Partners GLG.N, and Leda Braga, head of Bluecrest's 'black box' funds, will debate how the industry continues to win back clients in the face of choppy markets and looming regulation. The 2010 GAIM International conference on June 14 to 17 comes after almost a year of steady net client inflows -- helped by returns of 20 percent in 2009.
Delegates at the event will be more upbeat than last summer, when they met at the end of a 12-month period which saw clients pull more than $300 billion from the industry.
Fewer funds are shutting up shop, meanwhile. Just 165 funds were liquidated between October and December, barely a fifth of the level a year before.
But the impact of May's so-called flash crash, or temporary slump, in the Dow Jones and subsequent highly volatile markets will have been a useful reminder to delegates of the fragility of sentiment in markets.
"The mood is a hell of a lot more upbeat than 18 months ago," Andrew Rubio, CEO of hedge fund service provider Throgmorton, told Reuters.
"There is some uncertainty and there is some caution. At the same time we're seeing some funds starting up."
Hedge funds lost an average of 2.73 percent last month, according to Credit Suisse/Tremont, their biggest fall since November 2008 around the trough of the credit crisis.
Managers and clients will be keen to discuss whether this marks a return to 2008's losses and how tolerant of such blips the industry's increasingly institutionalised investor base will be. They might get some clues from a keynote address on 'Crowd behaviour and risk perception' from Nassim Nicholas Taleb, author of bestseller 'The Black Swan'.
"Funds of funds are still very intolerant (of losses). People walk out of their funds if they have bad performance. (But) pension funds take more of a long-term view," said Nicolas Clavel, founder and chief investment officer at Scipion Capital.
"I've seen much larger bloodbaths, more like 10 percent. It's not a problem losing 10 percent if you make 20 percent next month and that fits the strategy you've told investors."
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Against the backdrop of the Mediterranean Sea, fund bosses will try to work out whether Man's purchase of GLG marks the start of a wave of consolidation in a highly fragmented industry in which many smaller firms are still struggling to stay afloat. Controversial European Union rules governing hedge funds, which are close to being finalised, may also add to pressure for the industry to reshape if they push up operational costs.
"I think there's still a lot of scope for consolidation, with managers joining forces. There's more regulation coming into hedge funds and it requires more back office, and for smaller funds that's very expensive," said Scipion's Clavel.
"I could imagine a number of funds in some kind of partnership, sharing mid-office resources or getting everyone to use one administrator."
Hedge fund bosses will also debate with their investors how much ground they must give in terms of fee cuts, transparency and access to their cash.
But unlike last year, many fund managers are once again in a much stronger position.
For example, George Coplit, who runs around $700 million in portfolios of managed futures funds for LGT Capital in New York, told Reuters last week his unit had seen around $125 million of net inflows since the middle of the fourth quarter of last year.
"The pendulum has swung back to the manager. They're calling the shots a bit more," said Throgmorton's Rubio. (To read the Reuters Funds Blog click on blogs.reuters.com/fundshub; for the Global Investing Blog click here) (Editing by Joel Dimmock and Hans Peters)
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