A Gloomy Picture for Hedge Funds; Bailout Planners Fight Exhaustion

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Source: NYT

A Gloomy Picture for Hedge Funds; Bailout Planners Fight Exhaustion



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Published: October 5, 2008

A Gloomy Picture for Hedge Funds

The Capitol building at night. Many people laboring to resolve the financial crisis have worked long hours with little sleep.

Hedge funds’ annus horribilis is getting worse. The average fund, after losing nearly 5 percent in the first eight months of the year, was down an additional 7 percent in September, according to Hedge Fund Research. Many other factors are making life difficult for fund managers, too. An industry shakeout looks inevitable.

At the end of last month, many funds were expecting more than the usual level of requests from jittery investors to pull cash out. It’s hard to plan longer-term trades if your investment funds might suddenly be snatched away. And a flood of redemptions can force the sale of assets, hurting remaining investors — one reason that fund managers sometimes block withdrawals.

On top of that, hedge funds used to bolster returns with lots of borrowed money. Now that has become a scarce commodity. The ability to bet on price declines has also suffered, thanks to partial or complete bans on selling stocks short in markets around the world.

Some funds also have assets trapped in Lehman Brothers’ London unit, which is now defunct. Among them are GLG Partners and the activist investment firm Olivant, which last week was having trouble laying its hands on the chunky stake in UBS that it held through the Lehman unit.

Read more: http://www.nytimes.com/2008/10/06/business/06views.ready.html?ref=business