Hedge Fund Industry Faces Avalanche Of Redemptions

Oct 1 2008 | 9:01am ET

Was yesterday Black Tuesday for the hedge fund industry?

Hedge funds, battered by the credit crisis and market volatility, were expecting a huge number of redemption requests yesterday from investors eager to get their capital out of money-losing hedge funds that require 90 days notice for withdrawals. Hedge funds around the world have been selling positions and building up cash for the eventuality.

“If managers anticipate the amount of redemptions correctly, it won’t be a problem,” Sol Waksman, president of research firm BarclayHedge, told MarketWatch. “But a lot depends on performance in the last quarter.”

Hedge funds are reportedly holding their highest cash positions in history in anticipation of an avalanche of redemption requests.

Hedge funds focused on Asia are thought to be particularly vulnerable to investors flooding the exits, but if the redemptions are larger than expected, it could cause a sell-off driving down stock prices around the world.

Meanwhile, one former British regulator says the number of hedge funds considering liquidation is also on the rise.

“We are being approached by hedge funds considering voluntary fund liquidations on a weekly basis,” Andrew Shrimpton, formerly head of hedge fund regulation at the Financial Services Authority, told The Times of London. Shrimpton now runs the consultancy Kinetic.


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