One of the top executives at the wealth management arm of UBS predicts that the battered hedge fund sector will see further shrinkage in its assets this year, although the shakeout to the sector will also raise some opportunities for investors, according to a report by Reuters.

"We are going to see a reduction in hedge fund assets, we are going to see a decline in the number of hedge funds, we are going to see some strategies that will not work in this environment," Timothy Bell, global head of hedge funds advisory at UBS Wealth Management, told reporters in Singapore.

Investors could benefit, however, from contraction in the industry because there would be less capital and better managers chasing opportunities that could drive absolute return, as well as less emphasis on investments that rely on heavy borrowings, Mr Bell said.

The hedge fund sector has seen its assets shrink from its June 2008 peak of just under $2 trillion to about $1.4 trillion by the start of this year. Last year, the sector suffered its worst year for performance on record with an average loss of more than 18 per cent. However, short-biased and macro strategies both made money.

Macro strategies on economic outlook, managed futures and the traditional long or short strategies would be in focus, he said.

Mr Bell said investors could see better terms for less liquid strategies such as arbitrage and distressed debt.