If You Have the Stomach for Hedge Funds...

The hedge fund industry has been battered this year, suffering heavy losses in part due to redemptions by investors as they asked for their money back amid the market turmoil.

According to a Singapore-based hedge fund research firm Eurekahedge, the industry has lost some one-fifth of its assets this year to $1.55 trillion. About $125 billion of the losses came from redemptions.

The scandal surrounding Bernard Madoff is certainly not helping the industry. The investment adviser and former Nasdaq stock market chairman has allegedly swindled clients out of $50 billion through a bogus fund. It's forgivable if seasoned high-net worth investors get cold feet and steer clear of this form of investment.

Stephen Gollop, CEO of Tyche, expects one-third of the hedge funds to disappear in the first-quarter of next year.

"My figures are going down and down in terms of who is going to be left. Because we are seeing it just go out in every direction. There are funds out there now which are actually set up very, very well," said Gollop on CNBC Asia's "Protect Your Wealth" segment. "But they’re in danger because of redemptions. They just can’t control the amount of people who want to exit anything called hedge at the moment."

(Watch interview at left)

So are hedge funds still relevant to one's portfolio?

"If you’re actually looking to go into hedge -- and we are -- certainly it’s managed futures without any question," said Gollop. "You’ve got a huge level of liquidity either biweekly or monthly. And that gives them the ability to actually handle these redemptions coming in, if they come in, and they’re not coming into that area yet either. So it’s a good strategy."

Gollop added that managed futures have had some good returns this year, up to 50 percent in some of the firms.

But Gollop advised investors to go into hedge funds with a big dose of caution.

"I think the first thing not to look at, is long-short...by far the largest percentage of the entire market," said Gollop. "Outside of that, you’re looking at anything which is leveraging, anything with fixed assets. Anything that has got both is a real disaster. So you just need to avoid, or get out of those areas."

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Catch "Protect Your Wealth" on CNBC's Asia Pacific network every Tuesday on "CNBC's Cash Flow," Wednesday on "Asia Squawk Box" and Thursday on "Capital Connection."