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Collapse of Hedge Funds = Opportunities for Investors
Posted Oct 07, 2008 12:26pm EDT by Aaron Task in Investing, CommoditiesSeptember was a brutal month for hedge funds. In fact, it was the worst-month ever for hedge funds, according to Hedge Fund Research Inc., and many of the industry's erstwhile stars suffered debilitating declines.
Veteran hedge fund manager Jeff Matthews of Ram Partners says many hedge fund managers fell into the trap of being overly concentrated in positions and/or of becoming long- or short-only shops, i.e., "hedge" funds in name only.
Now many of these one-time masters of the universe are heading for extinction because the hedge fund's "2 and 20" fee structure -- which Matthews says won't survive this cycle -- makes it nearly impossible to recover from big declines.
But why should the "average" investor care if a bunch of high-flying come crashing back to Earth?
When hedge funds are forced to sell to meet redemptions (actual or expected) it can have a devastating affect on related assets, as detailed here when commodity-focused Ospraie blew up. The same pattern very much applies to stocks favored by hedge funds, including commodity names like Cleveland-Cliffs, ag stocks like Potash, and tech giants Apple and Google.
What happens to hedge funds "does effect the value of what you own in your 401(k)," Matthews says. "It can also provide you a good buying opportunity" once the distressed selling runs its course.
36 Comments
- Tuesday October 07, 2008 12:52PM EDT
Isn't it interesting, the buying opportunities (AAPL, GOOG, etc) come along when the appetite is gone.
Yahoo! Finance User - Tuesday October 07, 2008 12:54PM EDT
Why don't I feel bad for these guys???
- Tuesday October 07, 2008 12:58PM EDT
Dumb article stating the obvious yet over simplifying the entire situation at hand.
- Tuesday October 07, 2008 01:04PM EDT
Look this entire crisis is rooted in those who don't, or won't pay thier bills. Paying your bills will inject all the liquidity the market could ever wish for... This is a once is lifetime buying opportunity - I am buying! As much as I can afford! MM
- Tuesday October 07, 2008 01:15PM EDT
WHY HEDGING AGAINST THE COMPANY WHY NOT INVEST ON IT LIKE MR.BUFFET INSTEAD BUY AND HOLD FOR GOOD..........................ANYHOW THE ECONOMY WILL SOON TI TURN AROUND...... STUDY YOUR HOMEWORK NOW..............
Yahoo! Finance User - Tuesday October 07, 2008 01:42PM EDT
Until hedge funds have to have reserves far in excess of those they have today--don't go near them. They are in business to attract suckers!
- Tuesday October 07, 2008 01:46PM EDT
if the hedge funds aren't around anymore to buy and bid up the prices on fallen stocks, then those stock prices will not be going up anytime soon. So why should I be jumping in now and buying, if I'm the only one at the party?
- Tuesday October 07, 2008 01:49PM EDT
everything going down opens the door for good buying. But where's the bottom?
- Tuesday October 07, 2008 02:04PM EDT
Well...the 1920's paper-boys used to talk about buying stocks...that meant it was time to get out. I assume the reverse is true.
- Tuesday October 07, 2008 02:13PM EDT
people need to go to jail do not pass go and get billions dam it !
Yahoo! Finance User - Tuesday October 07, 2008 02:33PM EDT
Once in a life time opportunity to buy in the 4th quarter! The 10 year outlook looks very promising
- Tuesday October 07, 2008 02:40PM EDT
they just want someone to buy so there not stuck holding all the cards
- Tuesday October 07, 2008 02:40PM EDT
they just want someone to buy so there not stuck holding all the cards
- Tuesday October 07, 2008 03:02PM EDT
I run a private hedge fund and am up nicely year to date. Be careful grouping all hedge funds into together. I run at a volatility that is lower than that of the S&P 500's.
- Tuesday October 07, 2008 05:07PM EDT
Its sad all of the "average joe's" that have money in the market get screwed while all the top end guys walk away with millions. What the HELL is wrong with this country. Those "top end" guys should be behind bars. Sad state of affairs our once great country is in folks....pucker up because its not going to get better any time soon.
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Yahoo! Finance User - Tuesday October 07, 2008 12:37PM EDT
Oh great Aaron, um, BUY is a good idea! Please BUY while I'm dumping of all my stock with discount price of course