MANAMA: In spite of suffering more than most markets in the global downturn, hedge funds are likely to bounce back faster than other markets.
That is the view of Barclay's Capital director Frank Gerhard whose company is a major player in the regional hedge fund market and is in the process of launching a Sharia-compliant hedge fund platform along with Sharia Capital.
"We have been running a roadshow around the region and there is still a lot of institutional and high net worth individual interest in the sector.
"What we are likely to see is hedge funds bouncing back in the first quarter of next year even if equity markets remain depressed.
"Each time there is a major market downturn, like the Asia crisis of 1998 or the slump after the dotcom bubble burst, we have seen alternative investments like hedge funds bounce back far quicker than other investments.
"Even if we are going to continue seeing a bear market next year hedge funds can still be successful by shorting in this environment.
"We have been talking to a lot on institutions in the region and we expect them to start making decisions to invest in the hedge fund sector early in the new year.
"We are quite positive because even though things have been very dark the night is always darkest just before the dawn.
"Now that we have seen the sell off and that is pretty well out of the way then hedge funds are ideally placed to profit from market dislocation," he said.
"The hedge fund market was probably worth between $1.5 trillion and $2trn. I imagine it is down to $1.5trn but it is in a position to bounce back."
He said that a Sharia-compliant hedge fund could take advantage of the current situation by shorting the market when necessary.
"Under Sharia rules you cannot sell shares you do not own but we can build a platform that involves a structured product that would include brokerage down payments and cash flows that can adhere to Islamic law."
He said this could be achieved through existing Sharia-compliant instruments like Bai Al Arboon, a deposit secured agreement in which a security deposit is provided in advance as part payment towards the price of the commodity.
The deposit is forfeited if the buyer does not meet his obligation, he added.