[Source: CSFB Tremont Hedge Fund Index, VIX]

Outlook

Alan Greenspan may well be right – the weight of money, and the number of new players that have entered the hedge fund sector over the past few years, may well have acted to arbitrage away simple opportunities. This, combined with current market conditions, will make it hard for some players to post acceptable returns. We’ve already seen some hedge fund managers close their doors, and more are likely to follow.

However, good hedge fund managers are a resourceful lot. They will adjust their strategies to newly identified inefficiencies. For example, many mana...