Thursday, October 16, 2008

The Great Hedge Fund Unwind is Underway

From Infectious Greed:
News that Citadel Capital has had its worst year ever should be final confirmation, if needed, that the great hedge fund unwind is underway. If Citadel can't navigate the current year, then a good bet is that most current funds can't. After all, only two strategies were up in September -- short bias and macro -- and most strategies are down more than 30% for the year-to-date. The capital-weighted performance is worse if you consider that some of the better performing strategies, like short bias, manage negligible capital.

So, should we be worried? happy? other? Well, you need to understand the unwind to understand the non-stop selling of equities going on worldwide. It's partly about revaluation in the face of long and deep recession, but the selling is also about broken hedge funds being forced to sell whatever is liquid to respond to margin calls, and equities are more liquid than anything else they own, so they get sold....MORE
Via ClusterStock:

Highland Capital Smashed!

As it turns out, the rumors and reports that Highland Capital's flagship fund had begun a major unwind were absolutely right. Score another for the rumor mongers and CNBC reporter Charlie Gasparino.


Highland Capital Management LP will close its flagship Highland Crusader Fund and another hedge fund after losses on high-yield, high-risk loans and other types of debt, according to a person with knowledge of the decision.

Highland, whose total assets under management has shrunk to about $33 billion from $40 billion in March, will wind down the Crusader fund and the Highland Credit Strategies Fund over the next three years, said the person, who declined to be named because the decision isn't public. The hedge funds had combined assets of more than $1.5 billion....MORE