Long on scary headline, short on fact
The NYTs reports that Investors are fleeing hedge funds. It makes sense, and we've discussed this possibility here before, but, perhaps because hedge funds aren't public reporting companies, there's no data on how many investors are fleeing, how much they're taking with them and how many funds won't be around to pass out bonuses next year. Everyone's most cuddly hedge funder, Steven Cohen, is said to be sitting on the sidelines with a large pile of cash, but, speaking only for myself, I'd prefer to sit on a cushion of cash than on the cold, hard ground.
Anyway, the story should ruin some folk's train ride to NYC this morning and will certainly disturb realtors' morning coffee meditations.
(attn. BC: you'll notice that I waited until 5:50 to post this - who says I have no life?)
1 year ago
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3 comments:
According to the Financial Times, $43 billion came out in September alone.
http://www.ft.com/cms/s/0/bd6c2ec0-9b0d-11dd-a653-000077b07658.html?nclick_check=1
And October the market is already down 20%, so expect more withdrawals at year-end (most hedge funds only let people out once a year; some allow you out quarterly).
Even more interesting statistics here:
"According to its preliminary estimates, hedge-fund losses totaled roughly $79 billion in September, including $44.5 billion of investment losses and $34.5 billion of investor withdrawals. That was only partially offset by about $10.5 billion of new money flowing into the more successful strategies, Eurekahedge figures. In the third quarter, hedge-fund assets shrank by a record $210 billion, or more than 10%, estimates Hedge Fund Research. To put that in perspective, the decline in assets for the quarter exceeded the entire amount of money that flowed into the industry in 2007, which was a record $194 billion. Of those third-quarter declines, more than $31 billion was attributed to investors taking out their money, the largest net capital redemptions on record, says Hedge Fund Research. That left total hedge-fund assets at $1.72 trillion, down from $1.93 trillion at the end of the second quarter."
And as a note to keep in the back of your head, Chris, remember that these funds are highly leveraged (i.e. they borrow money to boost their returns, just like taking out a mortgage and having a little equity in your house, but getting all the upside if the house price goes up). So if they are leveraged 5-to-1, that means the $43 billion that came out = $200 billion in selling. That is one reason the market is down so much, all these funds de-leveraging to pay back their withdrawing investors.
CEA
Very interesting read - Thank You!
"That is one reason the market is down so much, all these funds de-leveraging to pay back their withdrawing investors."
And here I thought (he says tongue-in-cheek) it was 'cause the sky was falling!
Retired IB'er
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