September 27, 2007 (LPAC)--More residue floating up after the shockwave of the financial collapse.
Hedge funds are about to be hit with several billion dollars in withdrawals because of the huge hedge fund losses in August. These losses will be magnified through hedge-fund derivatives, for which the investors themselves have often borrowed 80% of the money put up.
Fund-linked derivatives will finish their quarterly reviews by the end of next week, the Financial Times reports. Because the investments are leveraged with borrowed money, the rules the investment banks have created for them require automatic withdrawals if there are losses. Big withdrawals could create crises at funds which are invested in illiquid assets, and lead to further selling pressure on hedge funds.
Aren't we glad the universe is lawful