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It happens because there is also a silent run on hedge funds that are forced then to close their positions, bringing, even sound, assets down. The other reason
by maurycy 18y ago
It happens because there is also a silent run on hedge funds that are forced then to close their positions, bringing, even sound, assets down.
The other reason is highly leveraged funds when the margin requirements went up after interest rates raise.
- bd 18y agoFrom The Economist article: All this means that hedge funds have been unable to ride to the rescue of global markets. According to the IMF, the average cash balance of hedge funds has risen from 14% last year to 22%, while the amount of leverage (borrowed money) they use has fallen from 70% of capital to 40%. In theory, that gives them the firepower to buy now that prices have fallen; in practice, they may need their cash to repay clients that want to redeem their holdings. You are only as smart as your dumbest investor is.
- maurycy 18y agoMeans that hedge funds should hedge against their own investors, too.