What Happened In 2008 And How The Hedge Fund Industry Will Look In British Virgin Islands In 2009

It goes without saying that 2008 was a year of turmoil for the

Hedge Fund industry as liquidity dried up and share prices fell.

The chart below tells the story, which starts with the US housing

crisis in 2005.

One week after this chart was put together the What Next

question was answered with the Madoff scandal but that is entirely

another story. So what changed in 2008 that affected the British

Virgin Islands Hedge Fund industry? In fact everything affecting

the global industry was replicated in the British Virgin Islands

Hedge Fund industry. From September 2008, liquidity was squeezed

for the first time by two critical factors – margins

calls from lenders reducing leverage and redemption requests from

investors; with both lenders and investors taking flight to cash.

What followed was the purest economic model come true. As

institutions were forced to sell securities and with little market

appetite for purchasing those securities, the theory of supply and

demand kicked in. Stock prices fell and continued to fall as supply

outstripped demand.

Whilst commentators contend that world economies are in turmoil,

it is easily argued that what we have in the Hedge Fund space is a

credit squeeze that has rippled into the stock market and that

there has in fact been no fundamental shift in general economic

conditions nor have the companies in which Hedge Funds invest been

performing any worse that before. Market forces will ensure that

the strong will survive, the weak will be replaced and once the

market realizes that the fundamentals have not changed, normality

will return.

For British Virgin Islands Hedge Funds in this period, as

security values dropped dramatically, so managed futures and short

bias strategies were the only ones coming out ahead. As fund

performance for almost all other strategies declined and with the

call for redemptions came a sizable drop in assets under management

for Hedge Funds generally. At the turn of the year one view is that

the outlook for British Virgin Islands Hedge Funds is bleak -

another however is there has never been so much opportunity.

If that is so, the British Virgin Islands Hedge Fund industry is

well placed to lead the recovery in 2009 with its nimble ability to

quickly and economically form new Hedge Funds to replace those that

have fallen. For sure there needs to be a catalyst and that can

come from any number of places. Take for instance the vast numbers

of talented people now looking for new market...