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Stock markets could trade flat for 15 years
Expert warns slowdown in wealth creation could lead to large mutual fund firms going bust.
- Reuters
- Published: 23:30 November 21, 2008
London: Stock markets may remain stagnant and trade sideways for over 15 years, according to hedge fund manager Hugh Hendry, who believes many large mutual fund firms could disappear as a result.
Hendry, partner and chief investment officer at Eclectica Asset Management, also said that poor performance from hedge funds and private equity could leave both industries as niche, little talked about asset classes in the future.
So far this month, Hendry's 146.2 million euro ($183 million) Eclectica fund is up an estimated 12.2 per cent, after a 49.8 per cent rise in October. In the first ten months of the year the fund is up 27 per cent.
"The stock market could oscillate or go sideways for a period as long as 25 years, from 10 years ago," Hendry told Reuters in an interview late on Thursday.
"We've got another 15 years of markets rising, falling and going sideways." On Thursday the S&P 500 index fell 6.7 per cent to its lowest level since 1997.
Record decline
The fall, which takes the S&P to more than 52 per cent below its October 2007 record high, makes the current bear market the second biggest on record, exceeded only by the 83 per cent drop between 1930 and 1932, according to Stock Trader's Almanac.
Hendry said that as a result of markets making no money for investors in nominal terms, many long-only fund firms which measure their performance relative to stock market indices, rather than in absolute terms, could disappear.
"You're going to lose so many large, long-only institutional managers," he said.
"Over 30 years, when the Dow went from 700 to [nearly] 14,500, the principal risk was keeping up with the index. But benchmark risk is going to be the ruin of your business."
Hedge funds
This year the $1.7 trillion hedge fund industry is delivering record poor performance, down 16.05 per cent in the first ten months, according to Hedge Fund Research.
"The hedge fund industry and private equity industry seem to be very, very comparable to the investment trust sector in the late 1920s - unregulated, quite leveraged," he said.
"People don't talk about them [investment trusts now] because they [messed] up so badly in a pivotal moment in their history. I fear for private equity and hedge funds it will be something similar."
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