Hedge fund liquidating


The sudden closure of hedge fund Vertical Capital last week may not have been so sudden, after all.The firm announced last week that it would shut its $400 million hedge-fund business after its founder struck a deal with the Securities and Exchange Commission on insider-trading charges.



During the stock market decline (or "crash") of October 2008, various media outlets have loudly identified the impact of massive hedge fund liquidations as a key ingredient to the huge equity sell-off.Instead the market has seen a slow but steady liquidation with existing longs cut by a total of almost 250 million barrels (15 percent) since Jan. It remains uncertain whether this is merely a pause and the price rally will resume shortly, or whether it marks a temporary peak, with more liquidation and price falls to come.But the balance of risks remains tilted towards the downside in the short term given the huge number of long positions still hanging over the market.However, when a FOF is in redemption mode it has a decision to make: Either the FOF redeems an equal amount of investments across all of its hedge funds or it pulls out larger amounts from a few hedge funds.

Selling a small amount of many funds may have little impact on the liquidity of a single fund.

A hedge fund does not have to continually invest, as a mutual fund does.



Hedge fund liquidating comments


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