Financial Times- For anyone worried hedge funds could spark another market crisis, Wednesday is a red letter day: the final chance for investors to put in demands for their money back by the end of September at many funds using standard redemption terms needing 45 days’ notice.
By Thursday, hedge funds with these terms will know exactly how much cash they must find to repay shareholders; cash they are likely to find by selling their investments. Large-scale redemptions may prompt big sell-offs; something BNP Paribas analysts say could cause “irrational†markets.
The impact that hedge funds can have on markets was seen last week. Japanese, European and US bourses were rocked by sell-offs at some of the biggest quantitative – or computer-driven – funds as they cut gearing, losing money in the process.
If investors in the hedge fund sector get cold feet, that could cause much greater turmoil, thanks to the heavy leverage used by many fund managers.
For the time being, many managers and others involved in the sector reckon redemptions are likely to be focused on the two types of hedge funds worst affected so far this year: credit funds with exposure to US subprime and quantitative funds.
