HSBC says hedge fund consolidation to continue

LONDON (Reuters) - Consolidation among hedge funds and funds of hedge funds will continue, a senior HSBC (HSBA.L: Quote, Profile, Research, Stock Buzz) banker said on Wednesday, adding his department had no concrete plans to acquire hedge funds.

"There is going to be a lot of consolidation in this space, particularly in the fund of hedge funds arena but also we've begun to see it in the single strategy hedge fund space," said Bill Maldonado, who heads Alternative Investments, HSBC Halbis Partners, an HSBC subsidiary.

Hedge funds have started to merge to become more competitive and ensure their survival as investors question their high fees after a period of weak performance.

"Some listed vehicles have used ... their shares to acquire other single-strategy hedge funds businesses and I'm sure that will continue and I think that's very healthy," Maldonado said at the Reuters Hedge Fund and Private Equity Summit.

Banks would play a large role in the consolidation process, through merger & acquisition departments specialized in the area and by financing such deals, Maldonado also said. But his department had no plans now to buy into the sector.

"We're not looking to acquire single strategy hedge fund assets today ... but I think in that sector in general, you will probably be seeing an increasing amount of activity," he said, referring to his department, not HSBC as a group.

Global banks have been buying into hedge funds and other alternative investment vehicles to offer their institutional and wealthy private clients the high returns the sector promises.

Hedge funds typically charge 1 to 2 percent annual management fees and between 5 and 20 percent of any outperformance of preset targets. Fund of hedge funds charge additional management fees on top of that.

In the past, such high prices were justified by double-digit returns. But with average returns of around 5 percent last year, fees are now likely to come down, making it essential for hedge funds to gain size and cut higher costs, analysts say.