MONACO Three days in sun-soaked Monaco won't be enough to stir hedge fund managers from their downbeat mood, made worse by a euro zone crisis that has prompted much soul-searching about the industry's future after years of lackluster returns.
Restaurateurs, bartenders and hoteliers getting ready to welcome an army of high-rolling financiers to this year's GAIM Conference in the Mediterranean principality could find money and mirth in short supply as recent poor performance weighs.
Delegates are expected to concentrate instead on serious debate on how best to weather a market storm that last year saw funds lose 5.3 percent, according to Hedge Fund Research, and which many fear could get worse as Greeks vote effectively on whether to leave the euro.
Many funds are also struggling to attract nervous investors, who have recently been disappointed by performance losses - a far cry from the industry's pre-crisis heyday five years ago, when many funds had to turn new clients away.
"The mood is pretty down," said Mark Wightman, head of strategy for Asia-Pacific at specialist technology group SunGard, who works closely with hedge fund managers and prime brokers.
"A number of people I've spoken to have said it's very hard to make money right now. The market is not acting rationally with the possible political interventions and many funds are struggling to raise assets."
This year's conference reflects the tougher times affecting the $2 trillion industry, with the main conference cut down to two days from three and the venue shifted from the huge Grimaldi Forum conference centre to a nearby hotel.
The themes for the two days of the main conference - 'Making money in volatile times' and 'New business strategies for a low return and high regulation era' - also reflect a more cautious mood.
Hedge funds' promising hefty gains early this year, when world markets rallied nearly 10 percent in January and February alone, are now a distant memory, with many funds keeping their heads down for fear of further losses.
"From everyone I speak to, no one is going long anywhere in any significant fashion ... Policy risk has become so central that sometimes it's better to not mess with it," Roberto Botero, director at hedge fund investor Sciens Capital Limited, said.
The average fund is now up just 1.52 percent to June 13 this year, the HFRX Global Hedge Fund Index shows, after a tough May, and many managers are turning to hoarding cash as they run out of trading ideas and brace for another period of volatility.
"Obviously everyone feels extremely uncertain," said one London-based prime broker who asked not to be named.
"Performance has not been that good over the last month or so. Funds have a buffer but are heading towards being flat for the year. People are completely distracted by the euro zone and the Greek election."
Managers such as GLG chief investment strategist Jamil Baz, BlueBay's chief investment officer Mark Poole and Fulcrum Asset Management's Gavyn Davies, ex-chief economist at Goldman Sachs, will discuss the turbulent economic climate and how markets will react to a crisis that this month saw a bailout of up to 100 billion euros for Spain's debt-stricken banks.
Meanwhile, executives such as PAAMCO chief executive Jane Buchan, Centaurus chairman Bernard Oppetit and Nicholas Botta, chief financial officer of activist fund Pershing Square, will debate how the industry can "reinvent" itself and attract investor cash again.
Investors are likely to grill managers on how they intend to make money and earn their hefty fees in these volatile times, rather than just preserve capital by sitting on the sidelines.
Presenting their best ideas at a series of investor roundtables, managers will get the chance to discuss "Tail Risk" strategies - designed to mitigate against a blow-up - as well as how to trade volatility, and global macro and distressed debt investing - all areas expected to do well in the current crisis.
Nassim Taleb, author of 'The Black Swan' and famed for his gloomy economic forecasts, will again be giving a keynote speech, while Peter Thiel, the co-founder of PayPal and billionaire investor in Facebook, will address the conference on 'Developing the Developed World.'
While money has been rolling into hedge funds from large institutional investors such as pension funds - helping the industry's assets recover and slowly head towards their 2007 pre-credit crunch peak of $2.6 trillion - it is predominantly going to the biggest, best-known funds.
Winton Capital, for instance, which runs around $29 billion, attracted $1 in every $8 poured into hedge funds globally last year.
And BarclayHedge and TrimTabs Investment Research recently reported the hedge fund industry redeemed $5.1 billion (0.3% of assets) in April, reversing a $2.8 billion inflow in March.
Many investors have questioned hedge funds' performance after two years of losses in four.
"It's an industry dominated by mediocrity," said Chris Cruden, CEO of Swiss-based hedge fund Insch Capital. "I think there's going to be a culling." (Reporting by Laurence Fletcher and Tommy Wilkes, Editing by Sinead Cruise and Giles Elgood)