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Liquidity Issues, Redemption Gates, and High Profile Ponzi Schemes Spook Investors

From the First Quarter, 2009 issue of Barclay Managed Funds Report. The full report also includes 24 hedge fund and managed futures performance ranking tables and in-depth manager profiles. Subscribe. View Roundtables from back issues.

For those who crave excitement in the form of financial market volatility, 2008 was the year for you. We witnessed a crisis of historical proportions emanating from an overheated real estate market and snowballing into a mortgage and credit calamity that triggered a global liquidity freeze, which in turn impacted almost every asset class with any sort of risk premium. Exciting enough?

Well, it seems that this was just the perfect recipe to unhinge every single Ponzi scheme that has been lying dormant for the last decade, and enough to shake the hedge fund industry to its core. For the year ended 2008, hedge funds lost 21.35% as measured by the Barclay Hedge Index, the worst annual loss in the recorded history of hedge fund performance. These losses, combined with a mass investor exodus from hedge funds resulted in a net decrease in assets under management of approximately $800 billion to $1 trillion for the year.

As we view the universe today, there exists a great dichotomy between the recent market impact on single strategy hedge funds and funds of funds. In particular, most single strategy hedge funds have reported significant liquidations and have been instituting gates to cope with liquidations in an orderly fashion. Many institutional quality funds of funds, however, report little in the way of meaningful redemptions.

How is it that funds of funds have weathered the storm? Is there another shoe left to drop in this segment of the market, or is the vast opportunity set that has been created by the market debacle enough to keep funds of funds investors on board? To address these and other critical issues presently facing fund of funds we have assembled the following panel:

Rob Christian, Financial Risk Management
Fabio Savoldelli, Optima Fund Management
Scott C. Schweighauser, Harris Alternatives, LLC

The complete article is now available on BarclayHedge.com. Subscribe to receive each issue of the Barclay Managed Funds Report at it comes out.

Labels: Barclay Managed Funds Report, Barclay Roundtable, FoF, funds of hedge funds, hedge funds