'Wiped out': Hedge fund assets could drop by 30%

pulse

February 8, 2017 8:43 PM

A report from Boston Consulting Group details the ways in which the hedge fund industry may be up for a big shakeup.

BCG hedge funds

Hedge funds might be facing a rocky road ahead.

A new report out from Boston Consulting Group plots three possible scenarios for hedge funds for the period until 2020. In the worst case scenario, BCG predicts industry-wide assets could shrink by as much as 30% and margins could fall by 20% as a result of fee reductions and increased capital expenditure.

In that scenario, performance would be similar to that of 2015 and 2016. Hedge funds on the whole returned about 3% last year, according to BCG, a period where the stock market hit all time highs.

“In the most dire scenario, disruption, the structure of the market would be wholly transformed and hedge funds would suffer significant reductions in AuM, margins, and employee compensation," BCG said.

In this scenario, very large players and niche players would win out, "and a large portion of the middle of the market [will be] wiped out."

A copy of the relevant table from BCG is below. You can check out the full BCG report here.

Even in the momentum scenario, hedge funds will have to retool, according to BCG. "The hedge fund of the future will need to do things differently," the report said.

The report set out a number of steps hedge funds should take, including putting an increased focus on their clients, and improving their operating model. In addition, BCG suggests hedge funds "embrace the technology revolution," and change how they source technology and talent. The report said:

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