"Snapping like twigs"

This little item taken from a market summary in the FT today is scary for hedgefundspace in general, even those of us in the vanilla equity subspace given the risk appetite and cashflow ramifications for investors (including funds of funds) and the markets in general:

“Whereas before non-deposit taking broker/dealers might have been willing to help distressed funds stay afloat to avoid being left with illiquid assets they could not sell at good prices, now they can effectively exchange those assets for Treasuries,” said analysts at BNP Paribas. “With this incentive to support hedge funds facing liquidity problems removed for broker/dealers as well as banks, we may start to see more hedge funds coming under pressure.”

This on top of reports such as this one in the Times... of London... of hedge funds ' “snapping like twigs”, with one failing every day.'

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And then there's the Carlyle Capital situation, in which one of the top names in private equity diversified into MBS through a massively leveraged listed fund (~$32 of debt per $1 of equity) investing in a portfolio comprised entirely of securities issued by Fannie Mae and Freddie Mac... but which nevertheless had price declines closely followed by margin calls from some of the Carlyle Group's formerly favourite bankers... which, at that kind of gearing, inevitably couldn't get paid. So $22bn of quasi Federal paper down the toilet as far as Carlyle Capital shareholders are concerned.

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So any surprise that Gold's over a grand a troy ounce? (And oil ~$110, $ at JPY100 and CHF1...)


Splendid start to the weekend!