Alex Ehrlich: Rapid Rise in Hedge Fund Launches

Alex Ehrlich, head of Morgan Stanley’s (MS) prime brokerage business, told the Reuters Private Equity and Hedge Funds Summit in New York that he is seeing a rapid rise in hedge fund launches.  According to Ehrlich, as many as 100 new lunched hedge fun firms could start working with his company this year.

“We are seeing very, very strong hedge fund formation right now,” said Ehrlich. “The number of launches…are five times stronger than what we saw last year.”

Ehrlich added that Morgan Stanley is winning back some of the clients it lost during the financial crisis – a reduction blamed on the collapse of Lehman Brothers (LEHMQ) in November 2008.

“Many clients who felt they had to move business have moved business back to us,” Ehrlich said.

A major driver of this renewed growth in the hedge fund industry is closely related, among other things, to a gradual yet substantial increase in allocations made by pension funds. Having said that however, is worth pointing out that in the past six quarters the industry saw significant contraction.

While the asset raising environment slowly improved during the 3rd quarter, with a significant increase in the 4th quarter of 2009, capital flows are still down an estimated 60% to 70% from the peak.

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