Steinbrugge Says More Hedge Funds Will Fail in 2015, While Niederhoffer Notes QE Market Importance

Donald Steinbrugge says 2008 will not happen again in the same way, as he notes core differences in the market structure. The chairman of Agecroft Partners, an institutional hedge fund placement firm, Steinbrugge has his finger on developments in the hedge fund and institutional investing world and thinks 2015 could be a year where we see more hedge fund closures, and that's a good thing. He also sees a shifting role the large banks are playing in providing market liquidity, and the change in landscape will benefit hedge funds.

Steinbrugge: Problems for hedge funds in 2008

Speaking on the podcast Wall Street Unfiltered, Steinbrugge said one of the problems in 2008 for hedge funds - and why many equity funds were so correlated to the performance of the stock market - was due to withdrawals. In 2008 investors in generally illiquid strategies withdrew money in the wake of the crisis "and these illiquid strategies were down more than they should have been," Steinbrugge said in the interview. "If that money had not been withdrawn, if that money had been locked up, and people were not allowed to come up until the end of 2009 or early 2010, I think you would have had very little drawdown from illiquid strategies.

 

Many hedge funds, particularly those investing in illiquid products such as credit default swaps, have put in tighter lock up provisions, which in part will change the course of the next 2008 crash.

Steinbrugge: Hedge funds to decline in 2015

Steinbrugge, whose firm speaks to 2,000 institutional investors each month and analyzes nearly 100 hedge funds each year, said he expects to see the number of hedge funds decline in 2015 - and he says that's a good thing. "There are too many mediocre hedge fund managers," he said. A thinning out of the hedge fund crowd could be reflected in higher general performance for the hedge fund indexes. Strategies that Steinbrugge is currently looking at include CTAs Managed Futures and other non-correlated offerings that help investors diversify their portfolio, he said.

The second interview on the Wall Street Unfiltered podcast was with Roy Niederhoffer of Niederhoffer Capital Management, who noted some important statistical oddities in today's market environment. Looking at the near term correlation numbers, Niederhoffer observed the Newedge CTA index correlating to stocks at a rate of 0.55, the highest in history. Niederhoffer also observed how even talk of eliminating U.S. Federal Reserve quantitative stimulus has been bringing market volatility back, a key point of market analysis going forward.

To listen to the entire podcast, click here or watch below.

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The post Steinbrugge Says More Hedge Funds Will Fail in 2015, While Niederhoffer Notes QE Market Importance appeared first on ValueWalk.

-By Mark Melin

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