How hedge funds could hurt Apple
Tuesday, November 4, 2008 : PermalinkThere’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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