Costard

Hedge Funds: What Happens When the Chickens Come Home to Roost?

Just a few comments regarding your math... if 15-20% is to be pulled out of hedge funds, then 15-20% of hedge fund investments will be liquidated, not 1.4(15-20%). You are conflating percentages with raw numbers. Should investors pull out $200 billion, then yes, hedge funds must liquidate 1.4($200b). Secondly, you are making several assumptions about highly-leveraged hedge funds that need to be backed up: that they are poorly performing, that there are enough of them, with enough assets remaining, and enough extra demand for redemptions in these hedge funds, to allow for an increase in total redemptions by $100-$200 billion - a full 5-10% of total hedge fund holdings. This seems unlikely to me... the most precarious hedge funds are either bankrupt by this point, or they have little value left to redeem.