Global hedge funds suffer from crunch

Bloomberg

"It's very clear that there is going to be significant consolidation in the hedge-fund industry," said Duncan Smith, a partner in Hong Kong at Ogier, a firm that provides corporate and legal services to financial companies. "Conditions are quite difficult and that really goes without saying. Underlying liquidity is very hard for funds."

Market declines contributed to $18 billion in net losses, while investor redemptions made up $46 billion, Singapore-based Eurekahedge said, based on preliminary figures taken from 41 percent of the funds it surveys. It said hedge-fund assets shrank by $110 billion to $1.65 trillion in October.

The slump takes declines to 13 percent this year as hedge funds accelerate job cuts and brace for the biggest annual losses and investor withdrawals since at least 2000, according to Eurekahedge data. Funds including Chicago-based Citadel Investment Group, run by Kenneth Griffin, have been forced to liquidate funds, limit withdrawals and eliminate jobs.

Declining assets
Hedge-fund industry assets peaked at $1.9 trillion in June, data compiled by Chicago-based Hedge Fund Research show. Investment losses and withdrawals may shrink that amount by 45 percent by the end of this month, according to estimates by analysts at Morgan Stanley.

Distressed selling and the rollback of debt-funded investments continued to pull down funds as the credit crisis sent the U.S., Europe and Japan into the first simultaneous recession since World War II. The MSCI World Index slumped 6.7 percent last month.

Chicago-based Citadel will close its Tokyo office and cut other Asian operations, eliminating 37 jobs less than a year after adding people in the region. Its two largest funds, Kensington and Wellington, are said to have lost 13 percent last month. The funds, which had a combined $10 billion in assets, received demands from investors to withdraw $1 billion by the end of the year, according to people familiar with the matter.