Hedge Funds' Crappy October

Hedge funds had another terrible month (Bloomberg article, h/t Naked Capitalism).  This is a bad time to be raising money for anything, but it's got to be an awful time to be raising a hedge fund (particularly if you need to be selling equity in the manager).

On the other hand, it's a great time to be lucky - if you happened to do well the last 3 months, your fund is probably getting overwhelmed with subscriptions!  I've heard anecdotally about a couple of small funds (< $50m) that have investors knocking their doors down for having 15%+ YTD returns.  I figure anyone who's up this year is either really, really, really smart (e.g. John Paulson) or plain reckless.

Paulson's busy buying mortgages like it's going out of style.  Maybe the Treasury should invest $50 billion of the TARP money with him and buy up distressed debt that way - I'd be much more confident of taxpayers getting a good price, even if we had to pay Paulson's fees.

The $1.65 trillion hedge fund industry is enduring its worst period in at least eight years as global declines in stocks and commodity prices led to investment losses and customers withdrew a net $62.7 billion from the funds last month, Singapore-based Eurekahedge reported. Assets may fall to about $1 trillion by the middle of next year, analysts at New York-based Citigroup Inc. estimated in a report published earlier this week.

``Hedge funds will probably face more redemptions for a while,'' said Akihiro Nishi, executive director at Tokyo-based Mitsubishi Asset Brains Co.'s investment advisory division.

The average hedge fund followed by Eurekahedge fell 4.5 percent last month, compared with the 19 percent drop in the MSCI World Index and the 22 percent slump in the Reuters Jefferies CRB Index, a benchmark for commodities.