Can hedge funds survive a turbulent market?

Attending a recent wealth party in London, a lawyer asked the question "can hedge funds survive this turmoil?"

The answer is resolutely yes from an industry expert. Not because they will do well in turbulent stockmarkets because they won't and not because life will continue as normal with a lack of liquidity to enable leverage, because it can't. The view was illustrated as an example. "Look at mutual funds. They have shown over considerable average periods that they underperform against index funds, but despite this, mutual funds continue to grow and get stronger. Why? Because despite knowledge to the contrary investors continue to plough money into them for a long time after they should." And that is why, he says, hedge funds will continue.

He says another reason they won't disappear is that the last two years have seen some very good returns posted by hedge funds.

Sphere: Related Content