Newmark's Door

As I noted last Friday, there's a reasonable chance that hedge funds will have to raise a lot of cash soon. Business Week writer Matthew Goldstein noted this, too:

With so many hedge funds—including some very large ones—posting negative returns this year, there’s a big fear that wealthy investors and pension funds are itching to take some money off the table. Many funds limit redemptions to four times a year in order to give managers breathing room to navigate choppy markets. But in order for an investor to qualify, managers generally require investors to submit a request 90 days before the end of the quarter.

Already, the redemption requests have been pouring into hedge funds well ahead of the Sept. 30 deadline. But it’s not uncommon for investors to wait until the last moment to submit a redemption demand. Sources say at some funds investors are seeking to recoup about 10% of their money, which is relatively high. The trouble is that most managers don’t keep too much cash on hand. To comply with their investors wishes, hedge fund managers may have to start selling lots of stocks—a move that could push equity prices even lower in the coming months.

If a lot of stock is dumped, with little or no relation to the intrinsic merits of the equities themselves, and if you have some cash and a medium-term or longer horizon, maybe an unusual opportunity to buy is coming up. (But economics predicts that if it does arise, it won't last long. Be ready.)