* Hedge fund managers still see 'trying' year in 2010
* Expect regulatory oversight, see money harder to raise
* See more start-ups this year however
By Svea Herbst-Bayliss
BOSTON, July 5 Hedge fund managers feel they
aren't out of the woods quite yet.
Seven out of 10 said they expect a "trying" year as the
industry faces regulatory oversight and competition picks up
with more funds likely chasing investment dollars, according to
a survey by accounting and audit firm Rothstein Kass.
"It is no surprise that the outlook for 2010 echoes the
concerns of 2009 rather than the unbridled optimism of years
past and reflects a more conservative approach to the future,"
Rothstein Kass consultants wrote.
Hedge funds rebounded last year from 2008's deep losses
with an average 19 percent return. But this year's market
gyrations highlight the pitfalls that are still present two
years after the financial crisis. Many prominent managers were
caught off guard by May's sharp sell-off and nursed heavy
losses that left the funds, on average, roughly flat for the
first five months of the year, data from Hedge Fund Research
show. June's performance numbers are expected next week.
At the same time though, there are some bright spots with
almost three-quarters of the managers saying they expect
investors to stick around longer as the pace of redemptions
Rothstein Kass surveyed 381 hedge fund firms in the first
half of 2010 and will release the findings of its fourth annual
survey on Tuesday. Reuters obtained a draft of the report.
Eight out of 10 managers also expect to see more new hedge
funds launched this year by newcomers and by existing firms
that are planning to roll out new portfolios.
Halfway through the year, prominent managers ranging from
former Goldman Sachs partner Mark Carhart to former Atticus
executive Dilan Siritunga are talking to investors about making
commitments to new funds.
However, hedge fund managers also said it is tougher to
raise money now because investors are more nervous and will be
writing smaller checks to newcomers.
Eight out of 10 managers surveyed by Rothstein Kass think
new hedge fund managers will have to rely more heavily on seed
capital where backers often take a stake in the new company,
instead of raising money mainly from institutions and wealthy
"As they engage in capital-sourcing activities, hedge fund
managers face greater competition from a variety of sources ,
including ETFs and mutual funds that purport to replicate hedge
fund strategies," Howard Altman, Rothstein Kass' co-CEO said.
Other bigger changes also loom on the horizon for the $1.6
Most managers resigned themselves long ago to the idea that
their once largely opaque industry will soon face closer
scrutiny from regulators. They are almost equally split on
whether registration will come in the second half of this year
or the first half of next year.
The U.S. House of Representatives gave final approval to a
financial overhaul this week and the Senate will vote later
Also roughly half of managers surveyed expect fees that
hedge fund managers charge -- often 2 percent of assets managed
plus 20 percent of profits on investments -- to come under
Newcomers who lack the track record and marquee name of
established firms will be ready to compromise first in order to
build their businesses, the survey found.
"When hedge funds are willing to negotiate fee
arrangements, they have consistently received concessions from
investors in return for this flexibility," said Jeff Kollin, a
principal in Rothstein Kass' financial services advisory
(Reporting by Svea Herbst-Bayliss; Editing by Steve Orlofsky)