Layers_of_Leverage_Haunt_Funds_of_Funds

Layers_of_Leverage_Haunt_Funds_of_Funds - investors, and...

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Layers of Leverage Haunt Funds of Funds Article published on November 17, 2008 Hedge funds of funds are finding no escape from boomeranging leverage, BusinessWeek reports. Like hedge funds, funds of funds had been relying on borrowed money. Some borrowed directly from banks to buy $2 of assets for every $1 invested. But now credit-constrained banks are saying no or hiking up their lending fees. Managers have no choice but to sell assets, just as their underlying funds have to -- or take more extreme measures. More and more, including GLG Partners and RAB Capital , are calling a halt to redemptions, Dow Jones Newswires reports. The latest to do so is Swiss-listed fund of funds firm Gottex Fund Management , which says its client redemptions total 11% of assets in the fourth quarter. London-listed RAB , meanwhile, is among those going even further by closing funds down, Dow Jones is also reporting. Three funds targeted at retail investors along with three of its five funds of funds will be shuttered. RAB cited deleveraging by private and institutional
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Unformatted text preview: investors, and warned that its managed assets at year-end are likely to slump about 72%, to $2 billion, from a year earlier. The pressure of compounded leverage is doing extra damage to funds of funds. They are down 18.7% this year, compared with 15.5% for individual hedge funds, BusinessWeek notes. Also crumbling is fund of funds' reputation as a safer alternative to hedge funds, which helped the vehicles gather up $747 billion by year-end 2007, or 43% of the hedge fund industry, according to BusinessWeek . The situation is especially tricky for leveraged funds of funds like CMA Global Hedge PCC , BusinessWeek notes. The fund's manager wants to sell shares to dig out of debt, but its underlying funds have suspended redemptions. By Joe Morris...
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This note was uploaded on 04/09/2010 for the course NBA 5450 taught by Professor Richardmarin during the Fall '09 term at Cornell.

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