The next domino to fall.

Hedge fund have had not-so-hot returns so far this year, on average delivering losses despite promises to be able to deliver positive returns in markets good and bad.But SEC short banned has changed everything. Hedge Funds are closing down every week. This will definely cause troubles in the coming months.


From the Times Online, "'We are approached by hedge funds considering fund liquidations on a weekly basis'" (recall the UK is an even bigger hedge fund center than the New York metro area):

Every week at least one British hedge fund is considering winding up its funds as catastrophic investment performance puts the sector under unprecedented pressure, an industry expert said yesterday.

Andrew Shrimpton, the former head of hedge fund regulation at the Financial Services Authority who now runs Kinetic, a consultancy, said: “The credit crisis is definitely kicking in for the hedge fund industry now. We are being approached by hedge funds considering voluntary fund liquidations on a weekly basis.”

His remarks came as CQS, one of London's best-known hedge funds, wrote to its investors to say that its flagship $4.25billion CQS Fund had fallen 9.42 per cent for the year to date.... The fund, which specialises in convertible arbitrage - or small price differentials between bonds and underlying equities - is down more than 11 per cent for the year.

Mr Shrimpton said that turbulent investment markets and worries that investors are rushing to redeem funds were taking their toll on a sector that had experienced unrivalled growth since the turn of the millennium.

He added that the FSA's ban on short-selling shares in the financial sector was hitting individual investment strategies, including long-short equity funds and event-driven funds. “There is a shake-out going on. Everyone is being affected,” he said. He also called on the FSA to drop its temporary shorting ban as soon as stability begins to return to the markets: “Short-sellers add liquidity to the markets; there is a clear case for dropping the ban in more stable times.”....

There was no suggestion that the fund [CQS] would be forced to wind up.

It also emerged yesterday that Toscafund, the $6billion London-based hedge fund run by Martin Hughes, was sitting on substantial paper losses on its investments in Washington Mutual and Sovereign Bancorp..

Hedge funds were bracing themselves yesterday for a rush of redemption calls as investors, particularly the super wealthy, try to withdraw their capital by the end of the year.

One manager at a London hedge fund said: “Investors are scared - they want cash. We are not going to be immune from that.”

He said that it was likely that companies that run funds of hedge funds would be hit particularly hard. Hedge funds have recorded their worst investment performance for the year to date.

Worldwide, hedge funds have lost more than 10 per cent, according to Hedge Fund Research (HFR), the Chicago-based research firm.

Almost every hedge fund investment strategy has recorded losses for the year so far, according to HFR data. Only macro investments and merger arbitrage strategies have posted gains.