2008-06-01blogspot.com

It getting progressively harder to find hiding places. Hedge funds tied to a specific theme are going to get hammered if that theme falls out of favor and they are on the wrong side of it.

Ironically, hedge funds were supposed to make money in any environment. Why then are so many losing money now? Does the emperor have clothes? We are about to find out because it is odds on that more forced deleveraging is coming. Many hedge funds are going to fail.

The main obstacle for hedge funds, however, has been the sudden withdrawal of liquidity from the market.

Banks had been happy to lend up to 75 per cent of an investment, enabling hedge fund managers to gear up their portfolios. But, in recent months, many banks have reined in the level of risk they are willing to take. As a result, hedge fund managers have seen their ability to borrow diminish.


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