Tough Times for Hedge Funds and Private Equity, EU Still Divided

(March 2, 2010) – Hedge funds and private equity companies face a difficult road ahead with higher costs and lower profits, Reuters reported.

“Investor expectations of governance have increased dramatically…It’s quite hard for single-strategy boutiques to meet those expectations,” Charles Kirwan-Taylor, chief investment officer of RAB Capital told the Reuters Hedge Fund and Private Equity Summit in London.

While small firms are up against cost pressure to slash fees and satisfy demand for managed accounts, private equity firms are unable to sell as many companies and the $1.6 trillion hedge fund industry has found its client assets considerably reduced.

According to a survey earlier this year from Preqin, a London-based data provider, $246 billion was raised by 482 funds last year, down 61% from 2008 and the lowest since 2004.”We are seeing a trend away from the bigger mega-buyout funds toward more of a focus on smaller mid-market and regionally focused vehicles,” the report said. The average period of time to raise a fund is now more than 18 months, when it previously stood at just a year.

And despite last week’s rumors that members of the European Union were nearing a compromise on hedge fund and private equity rules, members continue to remain divided about the scope of the regulation, the use of depositaries and rules for funds based outside the EU. The divisions reflect “deep ideological divisions about regulating financial markets in the wake of the economic downturn,” the Wall Street Journal reported.