Tuesday, December 16, 2008

A Third of Hedge Funds Face "Wipe Out"

I done a few posts on hedge funds, and their influence over this market. They've been facing massive redemptions and forced selling, which has contributed immensely to the volatility in the market. Now that things have calmed down a little, some of the data will be appearing from the wreckage:

Almost a third of hedge funds will shut or merge after the $1.5 trillion industry posted its worst ever performance this year, according to IGS Group, which advises hedge funds on raising money.

“The failure rate is going to go up, the closure rate is going up, and the merger rate is going up,” IGS Chief Executive Officer John Godden said in an interview in London. “It’s going to be a 30 percent wipe out.”

It's all part of the cycle of deleveraging. All this is going to do is take away more capital from the market, and quite frankly that's what it needs most. In the next administration, I'd imagine we're going to see a lot more regulations for hedge funds, as well as less tax loopholes. These funds will still be the preferred investment vehicle for high net worth individuals and endowments, but without question, the industry is going to go through some changes.

Article Source.

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