Total redemptions could reach about US$1 trillion by the end of this year

According to Empirical Research Partners, total Investor’s redemptions from hedge funds and mutual funds are expected could reach about US$1 trillion (€ 800 billion) by the end of this year. About $650 - $700 billion will be withdrawn from hedge funds and a further $325 - $350 billion from mutual funds. This amount of funds represents about 6.5-7 percent of the capitalization of the US equity market. Even just a small portion of such capital hitting the market could produce a relief rally that would be jaw-dropping.

Redemption woes force hedge funds to raise further its cash. According to Merrill Lynch’s survey, hedge fund cash weighting has risen to an above average 5.2%; while Citigroup in September estimated the average hedge fund cash weighting at 30%.

According to John Greenwood, chief economist at Invesco Perpetual, growing debt in the system had accelerated way ahead of underlying reserves, forcing borrowers into deleveraging. The contraction of credit in the broad financial system at the upper echelons of the pyramid is exceeding the ability of central banks to create new credit at the base. Redemptions could continue next year as deleveraging spreads into the broader corporate and private equity sectors.

George Soros, chairman of Soros Fund Management, On November 13 predicted 50 – 75 % of the hedge fund industry will disappear in the coming months in any case. Hedge funds will be "decimated" by the current financial crisis, and forced to shrink their portfolios by 50-75 %.

A roughly 60% of $100 billion of the hedge funds' losses in October came from investor redemptions.

Related Posts :

George Soros: 50–75 % of hedge funds will disappear in the coming months (Update 1)

Sources :

DowJones Financial News Online: Redemptions tipped to hit $1 trillion this year, November 24, 2008
Seeking Alpha: David Enke: Hedge Fund Deleveraging Could Be Half Over, November 25, 2008

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