Quant funds were hit by a vicious circle of deleveraging in summer 2007.

High-frequency trading, meanwhile, has attracted plenty of controversy, although its supporters point to the liquidity it supplies to markets.

And managed futures -- heroes of the hedge fund industry in 2008 -- are struggling in 2009.

Next Tuesday and Wednesday I will be at the Quant Invest 2009 conference in Paris. Follow the latest on the industry on Reuters Hedge Hub.

However, today's news that Anthony Bolton -- widely regarded as the UK's top long-only fund manager for his unparalleled returns at the helm of Fidelity Special Situations -- is moving to Asia to launch a China fund shows other centres can easily emerge as rivals to the U.S. and London for fund management talent.

Bolton's interest in China and the potential of Chinese companies is long-standing, so in one sense the news of a fund launch and his relocation to Hong Kong is of little surprise.

But it comes as other fund executives are setting up in the region.

Start-up costs can be lower than in Mayfair, while hedge funds don't always need a critical mass of $50 million or $100 million to get going.

Meanwhile, Asian private clients offer a great opportunity for asset-gathering, while Asia ex-Japan has far outperformed global equities and the region's markets offer a wide array of exposures and opportunities.

With taxes on UK top-earners set to rise to 50 percent next spring and Hong Kong and Singapore offering much lower rates, how many other fund managers will take flight?

However, Ian Wace, co-founder of Marshall Wace -- one of Europe's biggest hedge fund firms with assets estimated by EuroHedge at $6.5 billion at the end of last year -- has leaped to the industry's defence, citing performance from the firm's own Eureka fund.

"We manage an active trading fund and I do accept there are frictional charges," he said at yesterday's Hermes Fund Managers and City of London responsible asset management conference. "If we have turnover of 15 to 20 times per annum and it costs 30 basis points to turn the assets that implies a 6 per cent charge per annum.

"People could say "how can you justify that?". I reply that if you provide 14.59 per cent of absolute return after fees and the 6 per cent charge, then it could be justified.

"I go to huge lengths to find where the alpha is, and I don’t pay a penny more than I want to pay for transactions."

And while hedge funds will always have their critics, Wace drew a contrast with broad stock market returns.

"When I look at returns, over the last 12 years equities are unchanged while we have provided 400 per cent compound returns because of the turnover in our funds. So who’s wrong?"

However, after apparently making progress with the latest compromise text from Sweden, opponents of tough regulation may have hit a setback.

According to a report by Jean-Paul Gauzes, obtained by Reuters, the Frenchman has recommended tighter rules than many had expected.

These include funds having to tell regulators how much they intend to borrow, the creation of a pan-European watchdog that could intervene if a fund is seen to be taking too much risk, and the same pay curbs as for bankers.

The Gauzes report, which was due to be published this week and discussed by committee next week, was seen by many in the industry as an influential report from a level-headed policy maker who had previously worked in the financial services industry and who therefore may have taken a softer line than some supporters of the bill.

There is still a long, complicated path to tread before the final set of rules is revealed, but the Gauzes report shows there is still plenty of lobbying to be done by the (within Europe at least) mainly UK-based industry.

Supporters of the bill, in contrast, keen to strike while the regulatory iron is hot, must surely be pleased that these measures are being recommended.

In the meantime, non-EU Switzerland may be looking more attractive to hedge fund managers by the day.

Gartmore plans IPO to cut H&F stake, debt - Reuters

Harbinger Capital sells New York Times shares - Seeking Alpha

Private equity eyes illiquid hedge fund stakes - Reuters

Payback time - The Economist

Time is right for hedge funds, manager says - DealBook

Hedge fund structuring: lessons of the financial crisis - Hedge Week

Citadel's Kenneth Griffin has been a case in point.

An article in today's Wall Street Journal (which dubs him a 'titan' and a 'hedge fund king'), says Citadel made $5 billion in trading profits in the first nine months of this year as markets recovered.

This comes after what the WSJ says was an $8 billion loss of clients' money last year.

Until 2008, and like many top funds, Griffin was turning investors away. Those in the fund paid 20 percent of profits plus commonly 4 to 8 percent of assets, the article says.

Griffin now has plenty of new ideas -- he is launching four new funds and expanding into investment banking to plug the gap left by Lehman -- but he is now cold-calling investors to raise money.

How times have changed.

(See also Back in rude health and Madoff shadow looms over UBP)

The views expressed here are the author's own and do not constitute Reuters point of view.

A recent EU report on the draft AIFM (alternative investments fund managers) directive commissioned by the Parliament's Committee on Economic and Monetary Affairs has added to the furious debate generated by politicians and by the army of campaign groups mustered against it.

The report criticised the directive as "poorly constructed, ill-focused and premature," and something that is likely to impose untenable costs on the alternative investments industry. The draft directive has raised a lot of hackles, but just how bitter a pill will it be to swallow in reality?

It's clear that there's a long way to go before the issue is settled and legislation is brought in, but it's also clear that there's no getting away from greater regulation of some type or another. Some aspects of the draft directive have been particularly controversial, especially the requirement to use a European credit institution as custodian.

One thing that seems sure, however, is that an increased duty of disclosure and regular reporting to investors and regulators will be a firm feature of the new regulatory landscape. A well managed fund will already have strong record-keeping and reporting processes, both internally for its own management and perhaps externally -- institutional investors in particular generally insist on higher standards of transparency than would have been typical of the industry ten years ago.

No one likes to have extra requirements imposed, but you can't help feeling that the draft directive's disclosure requirements are unlikely to impose too onerous an additional burden given the regular reports that a well managed fund will be generating already for its management and stakeholders.

Well in advance of politicians reaching any meaningful conclusions about the future landscape, hedge fund and private equity managers have been put under greatly-increased pressure to disclose information related to valuations, risk and operational processes as more institutional investors have got into alternative investments. Madoff and other scandals in 2008 really focused investor attention on this issue, however, driving increased scrutiny on back office and risk systems in particular.

With money starting to flow back into hedge funds again, the industry is now more confident and willing to look at the systems it needs in order to respond to the more intense requirements of investors and eventually the yet-to-be-determined disclosure requirements of the EU and US regimes.

At the same time, fund managers have to control costs and in some cases adjust to significantly lower assets under management compared to their pre-crisis peak. Technology will inevitably be at the core of how hedge funds respond to this new world, so the challenge is on technology vendors to be ready with more flexible reporting capabilities, stronger investor accounting functionality, and hosted services that give funds the option of outsourcing core systems.

To hear more of Paul's views on the alternative investments industry, click here.

Pershing reports Landry's stake; opposes CEO bid - Reuters

Amaranth withdraws lawsuit against Touradji - Reuters

New Trend Fund Management launches U.S. equity hedge fund - Hedge Week

BofA/Merrill: Hedge funds strong, but high-water marks elusive - Seeking Alpha

Ex-Renaissance MD Frey returns with new fund - Reuters

Credit hedge funds gaining popularity with institutional investors - Hedge Week

So it may be of some encouragement to see a new launch by Invesco Perpetual, announced today.

It's not a hedge fund, but instead a split-capital investment trust, a type of fund that was the subject of its very own investment scandal earlier this decade.

After millions of pounds of investor losses the name of splits became so downtrodden -- even though many such funds were relatively well-run vehicles -- that it seemed unlikely the sector could ever amount to much again.

If a new split-cap trust can be launched, then there is surely hope even for the most despised hedge fund strategies.

The views expressed here are the author's own and do not constitute Reuters point of view.

The ‘perfect storm’ of 2008 revealed several flaws in the hedge fund model.

With the decision by multiple funds to drop their gates in response to a tsunami of redemption requests, the mismatch of the liquidity in the funds’ investment portfolio and the liquidity provided to the investors became apparent.

Forward-thinking hedge funds are launching new funds (or restructuring) to resolve the liquidity mismatch while maintaining the integrity and scope of their investment process in a number of ways.

For example, many firms are using paired offerings, especially in the credit, ABS and distressed spaces: one with monthly lock-ups and conservative target returns, which will invest in liquid products; the second with longer lock-ups, approaching a private equity-like structure, with more aggressive target returns.

With this structure, fund managers can pursue short-horizon, actively traded investment strategies, as well as the longer-term investments involving less liquid assets.

We are also witnessing a trend towards managed accounts and away from co-mingled investments, particularly provided to the larger investors such as sovereign wealth funds.

These responses to liquidity mismatch also have a profound effect on performance fees charged by the manager.

The 2 and 20 fee structure is not necessarily the default for managed accounts, nor for the
longer lock-ups required in the funds with multi-year target holding periods.  To say it is exclusively downward pressure on fee structure is an over-simplistic and deficient conclusion.

Rather, it is a rational response to investor and manager needs for liquidity, sustainability and returns.