We may have just lived through the biggest financial crisis in 80 years, but its impact may still not have been big enough for people to learn the right lessons for next time.

Philip Wood, special global counsel at Allen & Overy, told today's Reuters Restructuring Summit in London's Canary Wharf that the effects on the Western world's populace of the credit crisis, while large, have simply not reached the proportions of 80 years ago.

"Do people remember (the lessons from a crisis)? Sometimes they do."

It took 140 years for the British to get over the South Sea Bubble of 1720 and introduce the Companies Act in 1862, he said.

"German inflation of the 1920s still casts a shadow over the German folk memory," he added.

"(But) I'm not too sure people will remember much about this one. Apart from a few unpopular people losing their jobs, it's not hit the population in the same way the Great Depression has, where people were hungry... it was catastrophic.

"We've lost a year's GDP, but for most people it's been a remote, silent whirlwind."

It's hard enough for fund firms to get investors to put money into markets when stocks are so volatile, but it seems they're also still having to wrestle with the bad publicity from U.S. financier Bernard Madoff's giant fraud.

Ashraf Mohamed, portfolio manager and head of Islamic funds at investment firm Stanlib in South Africa, told the London leg of the Reuters Islamic Banking and Finance Summit that investors are still nervous of another Madoff.

"All they are doing right now is saying we want to make sure there isn't any risk. One comment is 'let's make sure we don't have another Bernie Madoff situation'," Mohamed said.

However, he doesn't seem too worried about a repeat of the massive Ponzi scheme.

"My take is that it's all hit the fan," he said. "You don't need to concern yourself with assets being inflated (or) with people trying to deceive you because that's come and gone."

By Lorraine Turner

Speakers at the Reuters Hedge Fund and Private Equity summit this week were asked "what keeps you awake at night" and the answers were wide-ranging, from "my 7-week old daughter" to "the next meteorite".

Some executives are left counting sheep over the heavyweight questions that are plaguing our economies such as how low investment markets will fall or how the credit crisis can be eased as businesses remain stymied by a lack of credit.

Others are more entrenched in more specific fears such as cashflow from investors, a regulatory clamp-down or the fear of bankruptcy amongst private equity-owned companies.

Hedge fund bosses were noticeably cooler about the economic climate but still lie awake at night in a cold sweat over bad investment calls.

Meanwhile one poor private equity house boss confessed that he simply didn't wake at night. "I'm working much too hard for that and by the time I put my head on the pillow I'm totally wiped out." We all know that feeling.

Giampaolo was speaking today at the London leg of the Reuters Hedge Fund and Private Equity Summit.

McLean was speaking today at London leg of the Reuters Hedge Fund and Private Equity Summit.

There's no shortage of ill will towards bankers at the moment.

But some executives in the private equity and hedge funds industries feel they are getting beaten with the same stick by politicians and the public, despite feeling relatively blameless in this crisis.

BC Partners managing partner Andrew Newington, speaking at the Reuters Hedge Fund & Private Equity Summit in London today, explained.

"There is clearly no political goodwill towards financial services in general and everyone within financial services is being lumped into the same bucket," he said.

"So whether you're an investment bank, whether you're Fred Goodwin, whether you're a private equity firm or hedge fund, it doesn't matter, you appear on a placard at Canary Wharf with a noose around your neck, which isn't a very pleasant prospect."

The once-booming hedge fund industry has shrunk rapidly over the past 9 months to roughly $1-$1.4 trillion, as investors have pulled out their cash following some pretty lacklustre returns.

However, according to Mark Kary, chief executive of Polar Capital, the industry never really deserved to have grown to the best part of $3 trillion in the first place.

He told today's Reuters Hedge Fund and Private Equity Summit in London that while hedge funds had become a "fashion item" in the good times, when it comes down to it there simply isn't enough talent to support an industry of $3 trillion.

    "This went from a $400 billion business to a $3 trillion business in the space of seven years and I just don't think there's enough talent around to be able to do that," he said.

"The idea that you can have 10,000 hedge funds all with a short book, all with a long book, all risk managing and all doing it supremely well is ... absolute nonsense. It's a skill set that only a very small number of people can execute properly."

Some managers, such as John Paulson or Hugh Hendry, have performed very well through the crisis, but they are in the minority.

For many in the industry, who set up when times were good and then rode a rising time in all markets, it seems Kary is onto something.

By Huw Jones

Hedge funds are nothing if not optimistic – they have to be in the current climate.

While holed up in an English country resort last weekend, finance ministers and central bankers from the G20 group of countries agreed that the $1.4 trillion hedge funds sector should be made to register, be directly supervised and provide information about their holdings to regulators who track risk in markets.

And the European Commission, which drafts financial rules applied across the European Union, said later it will come forward with a draft law on April 21 for the sector.

The industry has long expected more regulation and is already beavering away in the background to come up with globally agreed standards in a bid to avoid aggressive regulation.

The sector’s golden bubble has burst and it remains an easy whipping boy for many politicians, a useful way of deflecting public attention from some of their own failings in the crisis. Short-selling curbs aimed at hedge funds are still in place in some countries though bank shares are still under the gun.

But could regulation help make the sector more respectable and allow it to finally attract a wider range of investors even at the cost of a big bundle of red tape?

Ken Kinsey Quick, head of multi-manager at Thames River Capital, seems to think so.

"I really think hedge funds should be regulated. Bring it on," Quick told the Reuters Fund Summit currently underway in Luxembourg. "People have not been able to have access to hedge funds. I wish they would just regulate it and bring us all out into the open," Quick said.

Hedge funds have long wanted to be able to tap the huge retail investment market, miffed that plain vanilla mutual funds can chalk up eye watering falls in asset values but are still touted as the perfect pension savings vehicle for the public.

But it will take more than direct supervision and registration for hedge funds for regulators to allow all investors to tap them.

Even if “transparency has gone through the roof” as Quick puts it, more regulation will bump up compliance costs and likely help split the industry into two parts -- a mainstream section that may eventually get widespread regulatory blessing to offer retail investors products within the EU UCITS framework, and a more cutting edge, innovative offshore sector that remains out of bounds to Main Street.

But this is all academic for many hedge funds as they won’t survive to apply regulatory changes. Hedge funds lost 19 percent last year with investors pulling out a record $158.91 billion in 2008, according to data from Lipper.

Quick believes banks will end up being plain utilities, opening the door to another golden era for hedge funds and also thinks half of all hedge funds could close down in a shake out he expects will be done and dusted by June. Now that may be really optimistic.

Spare a thought for the mega-rich.

While the man or woman on the street cuts back on non-essential spending as the value of their home falls and they worry more about whether or not they will keep their job, so too multi-millionaires are feeling the pinch.

Javier Arus Castillo, general manager of Santander Private Banking International, explains.

“With the markets down, if you have lost $100 million and have $300 million left then that makes you think. Your life is not going to change but you start to feel a little concerned.

“The top people who have their own plane or have NetJet shares of $8 million and one-third of a jet are now saying ‘does it make sense that to fly from Latin America to Europe costs me $100,000? Maybe I should buy a first class ticket.’”

Puts our own worries in perspective.

There’s no shortage of commentators lining up to opine on how much the troubled hedge fund industry is likely to shrink as the credit crisis unfolds.

So when someone talks about the industry being in “meltdown”, it is good to see they are backing up their dramatic views with some dramatic actions.

Enrique Marazuela, chief investment officer of Spain’s BBVA Patrimonios, says his clients have slashed exposure by more than two-thirds over the past year because the returns and risks are simply not what they were expecting.

On Monday Union Bancaire Privee (UBP) said it has taken down exposure to 20-25 percent from 30 percent at the end of last year.

Again, it says returns - running almost into double digits losses so far this year for the industry - have been disappointing.

Wealthy clients were the foundation on which much of the $2.6 trillion hedge fund industry’s early growth has been based.

UBP says the industry could shrink by one-third over the coming quarters as investors withdraw assets.

But if other wealthy clients are doing what BBVA is, then the shrinkage could be much more dramatic.