The number of hedge funds is likely to shrink dramatically in the coming years, according to Tanya Styblo Beder, chief executive of Tribeca,...

The number of hedge funds is likely to shrink dramatically in the coming years, according to Tanya Styblo Beder, chief executive of Tribeca, Citigroup's single manager proprietary hedge fund unit.

Ms Styblo Beder said at a conference on high-performance investing in the US which was reported on by Reuters that the total number of hedge funds will shrink to about 5,000 during the next five years, down from the current level of more than 8,000. She said this would be as a result of a “bifurcation in capacity”.

She added: "Such a decrease will stem from rising cost structures as you will need a lot of scale to survive.

"The nature of market trends is changing and it will become increasingly difficult to survive. Three years ago trends were months long and slow moving. Now the top 10 to 20 trends tend to be less than four weeks and most of the money is made in the first 72 hours - how do you trade that?"

The fact that so many hedge fund traders are now chasing the same opportunities, making the market less volatile and harder to profit from, is also expected to squeeze out many hedge funds.

Ms Beder said that these pressures have become a factor in statistical arbitrage, which seeks to profit from small price inefficiencies, and global macro strategies, which seek to ride longer-term economic trends.

But she refuted the suggestion from the more pessimistic analysts that the hedge fund flame is showing signs of burning out.

"I don't think the party is over. I just don't believe that there will be markets with very high returns for long.”