Sean Cumiskey, Head of Investment Strategies Group at Ivy Asset Management LLC, reviews the extensive changes underway at hedge funds, and their likely impact on investors. Findings include:

• We believe the hedge fund model will endure and evolve while the industry goes through a consolidation that will favor firms with strength, stability and experience.
• Hedge funds are adapting with changes to investor terms and increased transparency, and are actively anticipating changes to market dynamics, such as the development of exchange trading of credit default swaps (CDS).
• Regulators contemplating change need to be attuned to both the deficiencies and unique strengths of the current hedge fund industry structure. Hedge funds, through the Managed Fund Association (MFA) and other industry groups, are currently engaging in constructive dialogue on these issues with the regulatory agencies.
• A rebound in hedge fund returns is likely to follow improvements in financial system stability and abatement of redemptions, but there are no guarantees.
• The investment opportunities for hedge funds are expanding, especially as the corporate default cycle gains momentum, yielding opportunities in capital structure arbitrage, distressed debt investing, and fundamental long/short strategies.

For more information or a hard copy please contact, please contact David Zigas at 617 248-6202.

The preceding information is based upon the analysis of historical performance of various asset classes and assumptions with respect to future economic conditions. Past performance is not an indication of future results. This information is not intended to provide specific advice, recommendations or projected returns of any particular BNY Mellon Asset Management product.