Hedge Fund Blow-up

Some friends inside the financial industry tell me that the huge market move to the downside today was not caused so much by the fears about Lehman Brothers, but by the implosion of another big hedge fund. This will probably become a more common occurrence in the next couple of months. When you lever up 30-1, it gets very painful when the market falls. Stay tuned.

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0 Responses to Hedge Fund Blow-up

  1. JR says:

    I’m pretty sure no one is being allowed 30 to 1 leverage these days, but 5 to 1 still stings!

  2. 30-1 on their own possibly not but through financial instruments and using leveraged assets to purchase assets which are ran at 5 or 10:1 you can reach 30:1.

    I believe only the largest hedge funds which are typically the most stable (even that even exists now) are capable of really pulling down much of the market as a whole. Obviously some large hedge funds have struggled recently but there have been dozens which have failed in the past quarter which are never heard about or felt at the market level.

    – Richard

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