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How hedge funds could hurt Apple

There’s an interesting and timely paragraph about Apple buried in the middle of Scott (”The Finance Professor”) Rothbort’s latest primer on hedge funds (Hedge Fund Liquidations: Five Things You Need to Know).

He’s explaining how hedge fund investors — technically, limited partners — are only allowed to withdraw money on an quarterly or annual basis, which can result, when a fund is performing poorly, in a rush of redemptions that resembles a run on a bank.

To meet those redemption requests, a hedge fund leveraged 5 to 1 will have to sell at least $5 of investments to meet every $1 of redemptions. (And 5 to 1 is conservative; a hedge fund can, in theory, be almost infinitely leveraged.)

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