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Hedge Fund Meltdown May Soon Come

Nov 13, 2008

Sometimes it is difficult to separate the advertisement hype from actual reality, but here is what Mike Larson is saying about a deadline, November 17, 2008:

Speaking at MIT, legendary hedge fund manager George Soros just dropped a huge bombshell: Up to two-thirds of the world’s 10,000 hedge funds — massive investment pools with $1.9 trillion in assets — will FAIL in the weeks ahead.

If he’s right — and if anybody should know, it’s Soros  up to 66% of those $1.9 trillion will soon be dumped onto the market and deal a near-fatal blow to stock investors worldwide.

Soros has every reason to worry: Hedge funds are highly leveraged. They’re reeling from the worst financial crisis since the Great Depression. And their investors are losing money hand over fist.

Imagine paying high management fees and forking over the minimum investment of $1 million or more — and then LOSING nearly 16% of your money in ten short months  all with an investment that was supposed to HEDGE against risk or even profit in bad times.

And that’s just the average — many funds are faring even worse: Farallon Capital Partners has lost 24% of investors’ money. Investors in Citadel’s flagship hedge fund have kissed nearly 40% good-bye!

And returns are NOT improving: In September and October alone, the average hedge fund investor lost a staggering 11.4% — an estimated $216 billion!

Unsurprisingly, hedge fund investors — including many of the nation’s largest pensions and universities — are wounded, bleeding and stampeding for the exits, demanding that these funds return what’s left of their money.

But as a rule, hedge funds only allow investors to ask for redemptions once each quarter. Many of them require that investors who want their money back must ask for their redemptions before November 17: THIS SUNDAY.

These hedge funds will then have just 45 days to raise the cash needed to repay investors before yearend. So beginning next Monday, many of these huge funds will have no choice but to dump assets to repay their investors!

The handwriting is on the wall:


He may just be crying wolf, of course, but it is something to watch. Watch and see if the hedge funds begin to fail. If they do, keep in mind that it would mean another steep downturn on the stock market. The market is already down a long way, and if it goes down much further, it could easily turn into a classic "panic."

Perhaps it is somewhat prophetic that he mentions "the handwriting is on the wall." That is a reference to Daniel 5, when the hand appeared writing on the wall of Babylon's palace, telling them of the fall of Babylon.

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Category: Financial

Dr. Stephen Jones

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