Booming Stock Markets Could Threaten Hedge Fund Industry Growth

by Phillip Morton, Investors Offshore.com

30 June 2005

A new report commissioned by the Corporation of London has predicted that the hedge fund industry is set to grow four-fold over the next ten years, although the return of a bull market in equities could threaten the growth of the hedge fund industry in London.

According to independent research commissioned by the Corporation of London and prepared by financial management consultancy, Radley & Associates, the global hedge fund industry could grow by as much as 400% in the next decade, with London likely to benefit the most from this growth and retain its domination of the industry in Europe.

However, a spokesperson for the Corporation's City Property Advisory Team was quoted by investment industry news service Portfolio International as saying that a resurgence of interest in the equity markets would probably curtail growth in alternative assets.

“Pure and simply, if investors get heavily involved in the equity markets again, it will most likely be to the detriment of alternatives. Hedge funds may have stolen the march for the time being but a large scale upsurge in equity investing would mean less room for arbitrage, so they would be less attractive,” the spokesperson observed.

The report also suggested that there may be a limited threat to London's hedge fund industry from offshore jurisdictions, although this is likely to remain slight so long as London retains a favourable tax and regulatory regime.

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