At a time when markets need their money more than ever, the $2-trillion hedge fund industry could fall victim to bad timing, as yesterday's plunge coincides with today’s deadline for many investors to withdraw before year’s end, the Wall Street Journal reports. Funds may be forced to sell off stocks before they have a chance to recover, to compensate fleeing investors.
Even a short-term pullback by hedge funds would in turn hurt the market, accelerating the down trend. And while stronger funds can be expected to resume their growth, some are likely to fail."There's going to be a death spiral for a number of these funds, and I don't think we've even begun to see the unwinding," says the president of one brokerage firm. Even before the nosedive, industry-watchers had expected hedge funds' assets to be down 10% to 20% this year.