Hedge Fund Graveyard: 2008 ~ market folly

Wednesday, January 28, 2009

Hedge Fund Graveyard: 2008

Well, here's some overtly optimistic news about the hedge fund industry. That is, if you're a believer that consolidation is natural and healthy. "Only the strongest will survive."

693+ hedge funds were liquidated in the 3rd quarter of 2008 alone. That figure represents around 7% of the industry. When we first started to see signs of massive redemptions coming back in October, we knew it had the potential to get pretty ugly. It did.

Hedge funds started liquidating due to massive losses. Other funds saw huge requests for withdrawals, while others fought off investors by halting withdrawals. All in all, the damage was already done. In the fourth quarter of 2008, investors pulled out nearly $150 billion from hedge funds, or around 10% of all hedge fund assets. December marked the fourth consecutive month of outflows from hedge funds. The total net outflows for 2008 is now north of $200 billion. And, according to Channel Capital Group Inc, hedge fund performance losses for 2008 amounted to $535 billion, while $512 billion flowed through withdrawals and fund closures.

The graph below helps depict the severity of losses this year compared to the past.

(click to enlarge)

And, here are some estimated asset flows:

2008 Estimated Hedge-Fund Asset Flow Table by HedgeFund.net


Date   Total   Quarterly Quarterly  Performance   Net flows*
Assets Change % Change Losses
Q1 08 $2,847.50 ($40.16) -1.39% ($93.78) $53.62
Q2 08 $2,972.99 $125.49 4.41% $91.28 $34.21
Q3 08 $2,497.28 ($475.71) -16.00% ($347.51) ($128.20)
Q4 08 $1,841.17 ($656.11) -26.27% ($184.99) ($471.11)


Here's to hoping that 2009 can get its act together. But then again, who are we kidding... we're not necessarily counting on it.

Sources: Bloomberg, CNN, FT

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