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Hedge Funds In Trouble

It’s been rough for hedge funds in the first three quarters of this year. After the average hedge fund lost close to 5% in the first eight months and then to lose another 7% for the month of September alone (according to hedge fund research), It become deadly for many of them in the first week of October.
At the end of last month, many funds were expecting more than the usual level of requests from their clients/investors to pull cash out. which makes it hard to work on their longer-term trades when they stand the chance of losing capitol to do so. In turn hurting other investors in the fund. The number one reason hedge fund managers have guidelines in getting withdrawals.
Unless you’ve been living under a rock, you’ve now heard in the last week that many of these hedge funds are in emergency status trying to raise capitol for their clients that want to pull out their money. In the process they’re running in the negative zone. To make matters worse, hedge funds bolster their returns with lots of borrowed money, which makes it harder for them to do what they do best.
These firms make up a good percentage of why we’ve seen the decline in prices in the last few days. As a matter of fact, if you were watching Quantas Services Inc. (NYSE:PWR) on Tuesday, you would have seen a spike sell volume of almost 4 million shares in a one minute time frame. It’s believed that that trade was a hedge fund liquidating assets.
Some funds are also trapped in the Lehman Brothers London Unit, which is now a thing of the past. The volatility in the markets has been accelerated by the failures in the financial sector like Lehman Brothers, AIG and Wachovia bank. Let’s not forget to debacle that went on in Congress recently.
It’s getting harder for hedge funds to make positive gains. Yes, there are some that have had some good returns this year, but they’re getting few and far between. Most of them are down and could start seeing the writing on the wall of their impending doom. With all that is going on in the industry, there will be less firms out there. Of course the big dogs will survive to fight again, but how much capitol will they be able to raise to invest with is another question.

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