Thursday, January 15, 2009

An Update On Losses in the Hedge Fund Industry today released early estimates indicating hedge fund assets fell an additional 10.6% in December to $1.84 trillion, down from a peak of $2.97 trillion in Q2 2008.

  • The asset drop was largely due to net investor redemptions and fund liquidations of a record $221 billion during the month.
  • For the full year 2008, net investor redemptions and fund liquidations accounted for an outflow of $512 billion and performance losses accounted for an additional $535 billion loss; a total industry asset reduction of 36% or $1.047 trillion for the year.
  • When one considers the magnitude of losses in global financial markets in 2008, it is not surprising that the hedge fund industry, which on an aggregate level likely began the year with a high level of leverage and long exposure, saw this amount of outflow and performance losses.

It is clear that the hedge fund industry will look much different than in recent years. The two big unanswered questions are: 1) how many more funds will go out of business if they post another year of losses? and 2) when will all/some of the cash fund managers have built up come back into the market?


At 9:36 PM, Blogger Hedge Fund Lawyer said...

I think that many funds would go out of business if they suffered more losses in 2009. Not only are investors lining up to get out at some funds, but the high-water mark provision (unless modified with investor consent) is going to mean that many managers will face a lean year even if there are profits. Other managers have opted to close shop and then start a new hedge fund.


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