Friday, August 8, 2008

Hedge Fund Exit Stampede

One interesting aspect of the current stampede out of hedge funds is the comparison to LTCM (Long-Term Capital Management), which was the first great hedge fund meltdown requiring Fed intervention. LTCM was thought to be large threat to the financial system in 1998, but now it looks like small potatoes:
Greenwich, Connecticut-based LTCM leveraged $2.3 billion of capital into holdings of about $125 billion before its collapse, which roiled financial markets and led to a bailout organized by the Federal Reserve. The company lost $4.6 billion and received a $3.5 billion bailout from 14 lenders in 1998.

July ranks among the worst months of performance for hedge funds. Chicago-based Hedge Fund Research Inc.'s Weighted Composite Index, based on data from more than 2,000 funds, fell 2.4 percent in the month and is down 3.5 percent year-to-date, which would be the worst annual performance since at least 1990.

A mere $125 billion? Pfft. Definitely small potatoes.

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