WSJ: Hedge Funds Gird for Withdrawels

Hmm, this is interesting - I thought with the 2 month spike in the market since April 1 that investors would be quite happy with their hedge funds. The Wall Street Journal thinks perhaps they might not be.

• Hedge funds, frequently at the mercy of antsy investors, are bracing for a wave of withdrawals at the end of the month.
• HBK Investments LP, which peaked last year with more than $14 billion in assets, is finding its doorstep awfully crowded with clients asking for their money back. Already, investors have sought to withdraw more than 30% of their capital this year, according to people familiar with the figures. Firm-wide assets have shrunk to $11.5 billion. When it comes to withdrawals, HBK isn't alone.
• "Investors speak to each other. Many will feel that if they might want to pull money, it's best to get in line in case there's a rush to the exits," said Jeff Vale, principal of Infinity Capital Partners in Atlanta, which invests clients' money in hedge funds and isn't an HBK client. "June 30 is going to be interesting. The biggest risk out there is liquidity."
• Dallas-based HBK, known for its traditionally steady, conservative investment style, tends to fly below the radar despite its size. Investing in everything from private equity and sovereign debt to stocks and convertible bonds, HBK produced 15% annualized returns over 16 years. That was before last year, when it misjudged the subprime market and finished barely positive, returning less than 1% in its Master Fund. It was the closest HBK has ever come to a negative year, so naturally clients were looking for stability in 2008. The Master Fund ended the first quarter roughly flat -- respectable compared with the markets and losses at hedge funds on average. (gosh 15% annualized for 16 years, and then 1 bad year, and the peasants get restless? No wonder these hedge funds stampede from 1 sector to another desperate to make profits and then completely flip flopping 24 hours later - 16 years get thrown out the window in 12 months)
  
• Against that backdrop, HBK wasn't the most obvious candidate for a stampede. But, these days, investors don't need a gut-wrenching loss to prompt them to pull their cash, and redemption requests have been piling up, reaching levels the firm hasn't seen in a decade.
• Investors have been cautious about putting money with many established hedge funds this year, too. Some instead have committed to new credit funds set up to buy mortgages and other distressed assets. As those funds make capital calls, investors have to send in their cash -- another factor in the redemption trend, hedge-fund managers say.
• Redemptions throughout the hedge-fund community could have ripple effects in the markets in coming weeks as managers raise cash by selling investments common to many portfolios. The selling could add to tumult in financial stocks, long a favorite of hedge funds.

Something to think about when you wonder why your favorite stock is losing 18% over a week for "no good reason" or people constantly ask "what is the news?" - sometimes there is a very good explanation but there are so many factors we will never know about - in fact most of us (including many smaller institutions or hedge funds) are just gnats on the big behind of huge pools of capital who dominate the day to day trading. Keep in mind these guys control upward of $1.5 Trillion of dollars... so if even medium sized firms need to liquidate a stake, the stock is going down.