Hedge funds logged billions of dollars in losses during the month of October prompting again massive outflows and unsettling the markets in the process. According to Timesonline – as much as $100 billion was wiped off the value of hedge fund assets last month caused by panic-stricken investors who rushed to withdraw their capital on fears of a worldwide financial meltdown and mounting expectations that the global economy is entering a recession.
Singapore-based industry research firm, EurekaHedge – which tracks hedge fund strategies worldwide, noted that investors redeemed about $60 billion of funds in Oct., while see-sawing market conditions accounted for the remaining $40 billion fall.
Gloomy talk of an industry shakeout is getting louder by each trading session as returns at most funds sink lower. Experts now predict that as many as one in four hedge funds will be forced to shut within the next two months, with hundreds of billions eventually being wiped off assets.
In fiscal ’07, at the top of the hedge fund boom, worldwide assets under hedge funds management reached a peak of $2 trillion. Currently, hedge funds manage approx. $1.6 trillion. That’s a significant meltdown in dollar terms and a giant hole in performance. Hedge funds that specialize in convertible bonds and stocks are among the worst performers this year.
Never before have so many funds been in the red. In 5 of the last 10 years, notes NYT, fewer than 15% of hedge funds lost money. Even in the worst year, fiscal ’02, 31% finished down, according to estimates from HedgeFund.net, a unit of Channel Capital Group.
Hedge funds started bleeding profusely in the wake of the collapse of centuries-old institutions in the US and Europe that brought the year-long subprime-triggered turmoil in the markets to a boiling point in mid-September.
Some 70% of hedge funds have lost money from Jan. 1 through the end of September ’08.
Only one in three hedge funds has made any money this year. Winners include: Drury Capita, run by Bernard V. Drury; Paulson & Co., Inc., run by John Paulson; R. G. Niederhoffer Capital Management; Conquest Capital Group; MKP Capital Management; the Tulip Trend Fund, run by Progressive Capital; and funds run by John W. Henry & Company.