Reuters – A wave of hedge funds are being launched this year by traders as the financial crisis fuels a shakeout of talent from Wall Street banks and big investment firms, an industry executive said.

Record redemptions last year prompted hundreds of hedge funds to shut down, and swooning markets have made it difficult to raise new capital. Still, one leading financial services technology firm said a growing number of managers are braving the tough environment to strike out on their own.

"There’s a huge resurgence of new start-ups," said Jayesh Punater, chief executive of Gravitas Technology, whose company builds and manages technology systems for investment firms.

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Wall Street Journal – Some of the billions of dollars that the U.S. government paid to bail out American International Group Inc. stand to benefit hedge funds that bet on a falling housing market, according to people familiar with the matter and documents reviewed by The Wall Street Journal.

The documents show how Wall Street banks were middlemen in trades with hedge funds and AIG that left the giant insurer holding the bag on billions of dollars of assets tied to souring mortgages. AIG has put in escrow some money for at least one major bank, Deutsche Bank AG, whose hedge-fund clients made bets against the housing market, according to a person familiar with the matter. The money will be released to the bank if mortgage defaults rise above a certain level.

In essence, while the U.S. government is busy trying to prop up the housing market — by trying to limit foreclosures, among other things — it is simultaneously putting up cash that could be used to pay off investors who bet housing prices would tumble and many mortgage holders would default.

It’s unclear how much government money might eventually flow to hedge-fund investors. Overall, the government has committed up to $173.3 billion to bail out AIG. Of that amount, AIG’s housing-related bets have cost U.S. taxpayers some $52 billion.

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Tags: aig, american international group inc, american-international-group, bets, billions of dollars, deutsche bank, deutsche bank ag, escrow, fund investors, giant insurer, government money, housing-market, international-group-inc, middlemen, mortgage holders, mortgage-defaults, wall street banks, wall-street-journal