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Hedge funds and private equity offer long-term opportunities, says State Street

Although the hedge fund and private equity industries have been hit by the financial crisis, they will adapt to the changed investment environment and continue to provide significant lo

Although the hedge fund and private equity industries have been hit by the financial crisis, they will adapt to the changed investment environment and continue to provide significant long-term opportunities for institutional investors, according to State Street.

One of two reports released by the firm, ‘New Views of the Hedge Fund Industry’, cites two major trends affecting the industry: a migration to third-party administration and custody services, and increased regulatory oversight. 

While hedge fund redemptions are expected to continue through 2009, the report says anecdotal evidence suggests that investors are starting to regain confidence.

‘The hedge fund industry will emerge from the financial crisis – smaller, in terms of the number of funds, but eventually larger in terms of assets under management,’ the report states.

State Street’s second paper, ‘Private Equity at the Cross Roads’, notes that although the industry is currently under pressure from the financial crisis and recession, many believe that private equity is about to enter a new phase of more sustainable growth.

‘Over the long-term, investors and governments will look to private equity for its significant capital resources, management expertise, and high risk tolerance to help restore economic strength as impaired assets are wound down and fresh investments are required for new and expanding businesses,’ the paper says.

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