Tuesday, August 14, 2007

Losses spark hedge fund redemption concerns

Let the run begin.... And when you read comments from the hedge funds managers like the following via the excellent Naked Capitalism they better should take steroids to run faster.... I also recommend to read Genius Fails Again from Mish

Das gibt einen schönen Run auf die Kohle......Und wenn man Kommentare wie diesen von einem Manager liest sollte das auch nicht weiter verwundern. Besten Dank geht an Naked Capitalism für dieses wahrhaft aufschlußreiche Zitat. Zudem gibt Genius Fails Again von Mish weiteren Aufschluß darüber wie spaßig die nächsten Monate noch werden können.

"Wednesday is the type of day people will remember in quant-land for a very long time," said Mr. Rothman, a University of Chicago Ph.D. who ran a quantitative fund before joining Lehman Brothers. "Events that models only predicted would happen once in 10,000 years happened every day for three days."

Read this twice! They should combine their models with models from the rating agencies....... :-)

Lest diesen Satz zur Not zweimal! Die sollten am besten Ihre Modelle mit denen der Ratingagenturen zusammenlegen.... :-)

This news isn´t helping either...Auch diese Neuigkeit dürfte nicht gerade hilfreich sein....
Basis Capital Tells Investors Loss May Exceed 80%
Goldman Fund Cuts Fees to Woo Investors After Loss

Thanks to Minyanville !

SAN FRANCISCO (MarketWatch) -- Recent losses suffered by some hedge funds have raised concern that managers in the $1.5 trillion industry could get big redemption requests from investors this week.

Hedge funds usually lock up investor's money for three months or longer. There are also redemption-notice periods, giving managers time to raise cash to repay investors. Those range from roughly 15 to 90 days.

If investors want to get their money out of a fund by the end of the third quarter, a 45-day redemption notice period would mean that withdrawal requests need to be in by the middle of this week.

Some of the largest hedge fund firms in the world were hit by losses in early August, including Goldman Sachs , Renaissance Capital and AQR Capital Management. See full story.

If investors are rattled by such losses, they could ask for their money back this week. That, in turn, may be causing hedge funds to raise cash now to prepare for big withdrawals. (It's not clear whether Goldman, Renaissance or AQR have received redemption requests).

"This week is a major redemption window," said Lawrence Glazer, managing partner of Mayflower Advisors LLC, a Boston-based financial advisory firm. "So managers may be raising cash in anticipation of these redemption requests."

Sentinel Management Group Inc., a firm that manages cash for institutional investors including hedge funds, roiled markets on Tuesday after telling clients that it will halt redemptions to avoid selling securities at deep discounts.

Some of the hedge fund managers who are worried about possible redemption requests from their clients could be contacting Sentinel to ask for their cash back. See full story.

Some firms that allocate money to a range of outside hedge funds - so-called fund of hedge funds - may be forced to redeem because they are getting withdrawal requests from their own clients, Parker also noted.

"Money could disappear quickly - faster than it came in -- if you've had a bad drawdown this past month or two," he explained.

However, some of the biggest and most respected hedge fund firms have much longer lockups - of two or three years. See story on lockups.

Parker also noted that many hedge funds have 60-day redemption notice periods, so the window for third-quarter withdrawals may have passed for some investors.

A bigger concern is that investment banks are trying to shrink their balance sheets and could decide to lend less money to hedge funds, Parker said.

Most hedge funds rely on leverage, or borrowing, to magnify their returns. Some fixed-income hedge funds that don't have long-term financing in place could be forced to sell their assets quickly if their financing lines are pulled by investment banks, Parker explained.

"Liquidating a portfolio when there are no bids is devastating to the investors," she added
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Anonymous Anonymous said...

Hi! There is so much talk about investors loosing money. Who are this guys anyway? Whose money gets lost? Joen

12:21 AM  
Anonymous Anonymous said...

Ja, es wird noch interessanter.

It's natural that they would ask for their money back, as most hedge fund investors are supposed to be somewhat more sophisticated, and therefore should know that a small loss is better than a big one, and right now it looks like they're headed for a big loss if they do nothing.

"Liquidating a portfolio when there are no bids is devastating to the investors," she added.

But I can also see the Fund's side, and why they might actually, in some cases, be acting in the best interest of investors if they either deny or at least strongly discourage redemptions, zB by adding in their own capital to replace losses (as GS just did, apparently) and hopefully calm nerves. I guess the hope there is that the market for some of these holdings will recover somewhat and they can be sold later for a better price. Could be a tough call, depending on the holdings...


12:44 AM  
Blogger jmf said...

Moin Joen,

unfortunatley a large part are pension funds....

Moin Eh,

this is indeed tricky. When you take the Bear Stearns hedge funds as an example it was wrong to not liquidate back in March when the ABX was around 80.

You are right with your point "depends on the holdings"

But i think that lots of assets that are in these black boxes are losing value at a very fast pace.

Fun to watch this from the sidelines or even better from the short side... :-)

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