The last quarter of this historic year 2008 comes to an end and we have seen several hedge funds going bust since the sub-prime crisis first unfolded in August 2007.
The Hedge Fund Implode-O-Meter (HFI) at http://hf-implode.com which provides a list of global hedge funds that have bust and a list of those that are ailing states that since the sub-prime crisis, more than 108 hedge funds have collapsed, and another 40 are on the “ailing” list.
The redemption wave in the last quarter is serious. Recently billionaire US investor George Soros predicted the global financial meltdown could wipe out as much as three-quarters of the money they managed.
News Corporation chairman and chief executive Rupert Murdoch recently said it was possible that all hedge funds could be extinct by the end of next year – quotes The Australian News.com. This is really a serious comment from a top notch media mogul. He has a reason to say that as the 2 trillion asset base hedge fund industry as recently as June 2008 is now faced with a 45% erosion of the assets due to redemptions and losses in a short period of less than six months.
But as good times do not last for ever, even bad times do not last for ever. Even this will pass. The only question then remains is how long will it take to get over this financial crisis and when will the world economy bounce back to normalcy. It took several years to get over the aftermath of the Great Depression of 1929. Several thousand banks went bust during 1929 to 1933.
Today, Investment Bank as a class is wiped out totally. We are witnessing unprecedented bail outs of unimaginable magnitude in billions of US dollars. We may be able to assess the situation after the financial results of the last quarter is announced by the institutions in the financial sector and the manufacturing and services sector. We will know by then the real magnitude of further round of write offs of the corporate sector.