NYTimes reports today that hedge funds may be the next trouble spot in the nation’s financial health. “After years of explosive growth, losses are mounting — and so are concerns that some investors will head for the exits,” writes Louise Story.
The key is what happens in reaction to the funds’ worsening losses. As losses worsen, more investors will want to get their money out, which will cause more funds to cash out their investments, which will cause values to plummet, which will cascade into more investors’ wanting to redeem their fund investments. The key date to watch is this Tuesday, September 30, when a fair number of funds accept redemption requests from investors for the end of the year. If those requests show a dramatic increase, then fear and loss of confidence will have overtaken the hedge funds.
How does that affect you and me? Well, as the article points out, hedge funds are not just for the wealthy anymore. Since 2002, pensions, endowments, and foundations have forked over billions of dollars in investments, expecting bigger returns. Now those investments may be in jeopardy.
Posted by soberingnews 
