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The hedge fund industry could shrink by two thirds from its peak as market losses and a slough of redemptions take their toll, the head of investment strategy at Union Bancaire Privée was quoted as saying on Thursday [March 19].

Christophe Bernard told French language financial daily L’Agefi that hedge fund assets, which data show peaked at more than $2 trillion in early to mid 2008, could fall as low as $700 billion as investors seek out less risky climes amid continuing market turmoil.

Mr. Bernard is responsible for investment strategy at UBP, which at end 2007 was the world’s second-largest investor in hedge funds with more than $53 billion invested in single funds and funds of funds. Data is not yet available for 2008.

Mr. Bernard also said UBP might cut about 10% of its staff of about 1,390, in line with the banking industry, through a combination of layoffs and early retirement.

A spokesman from UBP said half of the layoffs would be in Switzerland and half in the rest of the world.

Mr. Bernard said UBP would reduce its own hedge fund exposure by two thirds, and would restructure its range of funds of funds by the third quarter of 2009.

Last week, UBP said it would partially reimburse investors with exposure to Bernard Madoff’s $65 billion fraud. Many invested either directly through UBP or had exposure via its fund of hedge funds products.

UBP said in the future it would only invest in funds with independent custodians, who hold the fund assets, and administrators, who calculate the value of those assets.

UBP’s Bernard said he expected UBP’s list of approved funds, currently at 270, to drop to about 100 by the end of the year.