Ken Webster, president of hedge fund firm John W Henry & Co, told the Reuters Investment Summit that a number of fund managers are already going out of business despite having "underlying positions that are profitable".
He added that as the global downturn continues, external pressures will force a number of players with previously sound strategies out of the market.
Reuters noted that the global hedge fund industry has been hit hard by the financial crisis, with overall losses for the sector topping 16 per cent in the first ten months of 2008, according to Hedge Fund Research.
During October alone, investors pulled $40 billion from the investment pools.
The wave of redemptions and losses has forced many hedge funds to dump their assets in order to boost cash reserves. According to the Standard, this deleveraging of Western funds could eventually top $12 trillion.