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Funds’ Big Test: The Great Redemption Rush

BusinessWeek – The battering that U.S. stock indexes have taken since the financial crisis escalated in late September has largely been the result of forced selling by mutual and hedge funds in need of cash to meet rising redemptions as fund holders head for the exits.

And as the crisis drags on into late November, investors’ attempts to square their accounts before yearend is exacerbating fund withdrawals.

While most funds typically keep at least 3% to 6% of their portfolio’s holdings in cash, the relentless selling pressure has ignited a vicious cycle that makes fund outflows even larger than normal.

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