NEW YORK, NEW YORK (March 2009) - The past year of continued deleveraging and redemptions has led to an industry in deep turmoil illustrated by hundreds of restructurings and several dozen hedge fund closures. Furthermore, the unexpected losses, illiquidity and the fall-out from several frauds has even brought into question the viability of the fund of hedge funds ("FoFs") industry as a whole.

The waiting list for redemptions continues to grow, as investors persist in demanding liquidity from funds regardless of their underlying performance. However, poorly constructed portfolios combined with the continued absence of liquidity across global cash and derivatives markets impair managers' ability to grant these requests, and resulting gates and suspensions have ensued. The redemption burden that was previously focused on the poor-performing funds has shifted - as these managers have already locked-up and/or gated their funds - to include even some best-in-class blue chip names. To compound matters, investors who have been able to withstand recent conditions are reticent to make new investments due to concerns over timing and co-investor risk. Thus, the bleeding of assets continues with no obvious remedy or turning point in sight.

For many, the New Year represented a source of optimism and a fresh start. However, our deep footprint in the hedge fund industry has provided us with a unique perspective that leads us to believe that an attitude of procrastination prevails and the industry will not improve until all parties become more proactive.

FIRST^TM ViewPoint - Perspectives on the Hedge Fund Industry - examines industry trends and shares insights from Navigant professionals dedicated to this sector as it undergoes transformational changes.