The hedge fund mini-crisis
The hedge fund industry may be just as overbuilt as the credit and housing markets were.
Is the hedge fund bubble about to burst? Many experts think so.
Wally Santana/AP/File
Yesterday I linked to Gabriel Sherman's sprawling State of Wall Street piece in New York Magazine. There was one particular quote about the hedge fund industry's own little mini-crisis - anonymous of course - that deserves a highlighting here as quote o' the day...
Skip to next paragraph
Joshua has been managing money for high net worth clients, charitable foundations, corporations and retirement plans for more than a decade.
Recent posts
“We used to rely on the public making dumb investing decisions,” one well-known Manhattan hedge-fund manager told me. “but with the advent of the public leaving the market, it’s just hedge funds trading against hedge funds. At the end of the day, it’s a zero-sum game.” Based on these numbers—too many funds with fewer dollars chasing too few trades—many have predicted a hedge-fund shakeout, and it seems to have started. Over 1,000 funds have closed in the past year and a half.
Sherman points out that there were 600 hedge funds in 1990, ten years later there were 4000. Now there are almost 10,000, a few thousand more than anyone really has any use for. The barriers to entry have basically disappeared (raise a million bucks, spend a third of it on admin stuff and you're in the game). But all of the data says that the bottom half of the industry is starving - virtually all of the flows have been going to the biggest funds out there for a few years now.
When Sherman says that the hedge fund industry is just as overbuilt as the credit and housing markets were, I completely agree.
The Christian Science Monitor has assembled a diverse group of the best economy-related bloggers out there. Our guest bloggers are not employed or directed by the Monitor and the views expressed are the bloggers' own, as is responsibility for the content of their blogs. To contact us about a blogger, click here.To add or view a comment on a guest blog, please go to the blogger's own site by clicking on www.thereformedbroker.com.
Follow Us