Hedgeweek: What will happen to the hedge fund industry if we experience a 2008-type market decline?

01 December 2014

With interest rates and credit spreads near historic lows and equity valuation above historical averages, many people are concerned that the Federal Reserve, by artificially keeping rates low, has created an asset bubble in the capital markets where many securities are priced to perfection.

What happens to the financial markets when the Fed begins to raise interest rates or there is some other economic shock to the financial system, and what impact will this have on the hedge fund industry? We recently saw a glimpse of this from mid-September to mid-October when we experienced a slight tremor in the capital markets which saw asset prices decline and volatility spike. This was followed by an onslaught of negative articles from the mainstream media relative to the hedge fund industry. Agecroft Partners believes there is a low probability of another 2008 type market selloff in the near future. The hedge fund industry is structurally much more stable today than in 2008.

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