Hedge Funds: Will the Bloodbath Continue in 2009?

Here is some overtly optimistic news about the hedge fund industry - that is, if you're a believer that consolidation is natural and healthy. "Only the strongest will survive."

More than 693 hedge funds were liquidated in the third quarter of 2008 alone. That figure represents around 7% of the industry. When we first started to see signs of a massive redemptions coming back in October, we knew it had the potential to get pretty ugly – and, it did.

Hedge funds started liquidating due to massive losses. Other funds saw huge requests for withdrawals, while others fought off investors by halting withdrawals. Overall, the damage was already done. In the fourth quarter of 2008, investors pulled out nearly $150 billion from hedge funds, or around 10% of all hedge fund assets. December marked the fourth consecutive month of outflows from hedge funds. The total net outflows for 2008 is now north of $200 billion, and according to Channel Capital Group Inc, hedge fund performance losses for 2008 amounted to $535 billion, while $512 billion flowed through withdrawals and fund closures.

The graph below helps depict the severity of losses this year compared to the past:

click to enlarge

Below are some estimated asset flows:

click to enlarge

Here's to hoping that 2009 can get its act together. But then again, who are we kidding - we're not necessarily counting on it.

Sources:

• Bloomberg
• CNN
• FT

Comments

[Graham Giller:]

My research indicates that hedge fund performance trends on a month-to-month basis.

Jan 29 08:44 AM

[Crude Oil T...:]

My guess is that this year will weed out a few more weak funds during the next leg down.

Jan 29 11:51 AM