The hede fund industry lost nearly a tenth of its size as it was caught between biggest outflows since 2005 and worst performance in 10 years. Global hedge fund assets shrunk 8.8% to $1.63 trillion on September 30, 2008, from $1.8 trillion on June 30. The size of the industry is further expected to shrink to $1 trillion.
Tough times for the hedge fund industry began with the unravelling of the short financials and long commodities trade, where in the hedge funds sold US financial stocks and bought commodities.Changes in margin requirements and other trading rules by US regulators triggered the unwinding of this trade which saw crude prices drop from $ 148 levels to below $100 in a flash causing serious dent in assets of many hedge funds.
The industry had received inflows in the first two quarters of the year, though the inflows have been falling gradually over the previous four quarters.In the quarter ending June, $4.03 billion came into hedge funds.However the reversal in the third quarter has taken the overall flows for the year into negative for the first time in three years. At nearly $12 billion, the outflows in 2008 is already threefold larger than the last negative reading in December 2005, with three months to spare.
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