The incredible shrinking hedge fund industry

Will you miss them when they’re gone?

The hedge fund industry continues to shrink drastically as well-heeled investors pull their money out, and as stocks worldwide sink.

From Bloomberg News:

Hedge funds worldwide shrank by 9% to $1.56 trillion last month, the lowest level in two years, after investors withdrew cash and stock markets declined.

Investors pulled $40 billion from hedge funds in October, according to Chicago-based Hedge Fund Research Inc., while market losses cut industry assets by $115 billion.

Hedge funds fell by an average 6% last month, pushing the year-to-date decline through October to 16%, according to the HFRI fund weighted composite index.

That still was a better year-to-date performance than the Standard & Poor’s 500, which was off 32.8% through October. But it isn’t an apples-and-oranges comparison, because the hedge fund average performance includes results for all sorts of different strategies, including shorting stocks.

HFR estimates there were 10,000 hedge funds at the end of October.

In 2007 the funds took in a record $194 billion in fresh capital -- just as markets were peaking.

There must be a lot of wealthy people who wish they’d never heard the term "hedge fund."

Comments

[Mr.Bilko]

Good riddance. The oil and commodities bubble of this summer were fueled by the hedge funds, not by global demand. During the summer when oil was around $140/barrel there were reports of dozens of fully loaded oil tankers in the middle east with no customers. During the summer Chinese and south Asian customers were cancelling orders due to weak demand, yet prices kept going higher and higher. Amazing how the run on hedge funds coincides with the historic plunge of oil and commodity prices.

[martscan]

November 20, 2008. Mercy!!

[hmmm]

You also didn't take into account of the fact that Hedge funds routinely exaggerate their accomplishments.

[Don Gulseth]

The implicit Federal guarantee of credit defaults swaps (CDS) is mute. Purchases made created a liability issued in excess of 60 Trillion American Dollars if they defaulted! They were issued by the investment banks such as Lehman Brothers since 2002. As a result at least 7 countries, have had to support their own banks to stay solvent. The implicit guaranty was made with zero dollars in reserve since CDS's were not regulated. Russia, China, England,Germany, Iceland are examples holding the bag. All these were sold to banks and others and the CDS's were acting like FDIC does for bank deposits. There isn't enough money in any economy to handle this kind of liability. Faith in the investment community is the only way out. They certainly did not earn our faith but we have no other reasonable possibility earning our way out of this crisis.

[martscan]

Mr. Bilko;

Has it occurred to you that hedge funds could be shorting oil, forcing prices beyond a purely economic price to an extent as equally unrealistic as they did on the upside?

[lioness]

A hedge fund called Nine Points Capital in Seattle said on CNBC yesterday that they had a 100% return so far this year. I went to their website, which offers very little information unless you complete the form and someone then calls you. I went through the exercise and found out that their cut is 40%!!!
(Although they were willing to forego the management fees!!) Minimum investment is $500,000-$1,000,000!! Too rich for my blood, and one only wonders how many redemptions they've had the last month or so...once the new capital gains rules kick in, can't imagine who willl want to parttake of these very risky instruments.

[martscan]

lioness:

With net returns of 100% I can't imagine who would NOT want to invest with Nine Points Capital. Regardless of the capital gains rates, you first have to have the gain. With these returns, during a bear mkt, gains are most likely from short sales and, depending on when the stock is delivered to cover the short, most short sales will be short term cap gains taxed at ordinary rates in any event. While "2 and 20" fee rates are common, funds with performance rates as high as 45% are out there but, after considering all conditions such as hurdle fees, high water marks, redemption fees, etc and actual performance...the higher fee funds may be the better choice, compared to a lower performing fund having lower fees.

[Jim James]

It's unbelievable that most Mutual funds are down over 40%, and the media refuses to mention this. Hedge funds make their 20% cut based on profits. When there is no profit with the exception of a expense fee of sometimes less than 2% they make zero. Also in many funds the managers have a huge portion of their wealth invested right along side the investors. Why is this stock broker commission upfront scenario better? What does broker have invested? Usually nothing and could care less if you make money. It's disgusting what goes on. But blame the Hedge Funds the American public needs a scapsgoat for their reckless spending habits.