At the peak in the market, it was estimated that about 10,000 hedge funds were managing about $2 trillion in assets. Though that pales in comparison to the money in traditional mutual funds, if you add in the leverage, you’re talking serious market weight. Due to forced deleveraging, partly triggered by record-breaking redemption requests, hundreds of hedge funds are selling, sparking a fire sale on all sorts of investments. We all feel the pain though, of course, as much of what they’re selling is also owned by individual investors, pension funds, 401(k)s, etc.
As part of this great deleveraging, lenders to hedge funds are slashing credit lines or triggering margin calls. The resultant cash squeeze is forcing a rush to the exits, which is exaggerating the market’s swings.
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