Hedge of darkness

In the space of 18 months, the hedge fund derivatives space has collapsed as dealers have fled in the face of constraints on balance sheets and funding, liquidity concerns and the Madoff scandal. Managed accounts are being touted as the way forward, but are there too few dealers left for the space to survive as a competitive marketplace? Matt Cameron reports

Today, only four or five core banks can be described as active in the hedge fund derivatives business. It is far cry from 18 months ago, when almost 20 banks were hitching a lift on what was a profitable bandwagon. If an issuer had a few traders and an Excel spreadsheet, then creating structured products linked to hedge funds was relatively easy. But the new landscape, says one London-based fund-linked structurer, has been relieved of banks that saw the business as an easy way to make money when