Hedge Funds Sailing Into A Financial Storm??!

Posted by Kris | Saturday, November 01, 2008 | | 0 comments »

Sure enough there will be some loser among the big players namely Hedge Funds.The last recession was first triggered by the massive implosion of a hedge fund supposedly managed by geniuses (according to a book on the subject matter..cannot remember the name. Will try to get that interesting book). The hedge fund was known as "Long Term Capital Management" which uses high leverages/borrowing and speculated heavily in currencies/bonds on the wrong side of the bet.

I wonder why the news/analysts have not yet started to pick up the smelly scent on troubled hedge funds. This will surely triggered another massive wave of panic across Wall Street.

Citadel to Wind Down $1 Billion Fund, Shift Capital

By Saijel Kishan and Katherine Burton

(Corrects number of funds in which Citadel invests in ninth paragraph.)

Oct. 30 (Bloomberg) -- Citadel Investment Group LLC, the investment firm run by Kenneth Griffin, plans to wind down a $1 billion fund that invests in hedge funds and shift the capital to a business that finances new managers.

``We have seen strong interest in the incubation and seeding strategies that we've developed,'' Katie Spring, a spokeswoman for Chicago-based Citadel, said today in an e-mailed statement. ``We believe these will be important components of expanding investment talent over the years to come.

About 95 percent of the money in the Fusion fund of hedge funds is Citadel's and is set to be reinvested in a unit that helps finance new asset managers. The remaining 5 percent is from outside clients and will be returned.

Funds of hedge funds, which managed about $850 billion as of June, may lose about a third of their assets by the end of the year because of market declines and client withdrawals, according to Huw van Steenis, a Morgan Stanley analyst in London. These funds pool clients' money and invest it with other managers, a way to diversify among different strategies.

``What we are seeing is an immense shakeout of the fund-of- funds industry,'' van Steenis said. ``The global deleveraging going on, massive unwinding across most asset classes and redemptions from private clients make it very challenging times for them.''

Fund of funds lost 11.8 percent in value this year through September, compared with a 10.1 percent decline by hedge funds themselves, according to data compiled by Hedge Fund Research Inc. of Chicago.

Pensions & Investments, a trade publication, reported Citadel's plans earlier today.

Worst Year

Griffin, 40, who started Citadel in 1990, has posted the biggest losses of his career this year after increasing wagers on loans and bonds before the markets plunged. Citadel's biggest funds, Wellington and Kensington, slumped about 35 percent through Oct. 17, Chief Operating Officer Gerald Beeson said on a conference call last week with bondholders.

The Fusion fund has investments with more than 50 managers. The company expects to shift its capital in the pool to the Discovery and Pioneer seeding funds.

Jon Venetos, a Citadel managing director, will remain head of Citadel Alternative Asset Management, which runs the two seeding funds as well as Fusion.

Hedge funds are private, largely unregulated pools of capital whose managers can buy or sell any assets, bet on falling as well as rising asset prices, and participate substantially in profits from money invested.