Hedge funds rush to $108 billion, trading where big banks once tread

Some firms on hiring spree

Fed Funds

The Fed has funneled more than $2.5 trillion into the financial system since 2008 to help galvanize a global economy that economists expect will grow 2.28 percent this year, slower than the 2.32 percent annual average since 2005, Bloomberg data show. Japan’s central bank pledged to double that nation’s monetary base by the end of 2014 with more asset purchases.

Yields on company debt globally dropped to an unprecedented low of 3.09 percent on May 2, according to Bank of America Merrill Lynch index data. Credit hedge funds received $9.4 billion of deposits during the first three months of 2013, HFR data show.

Risk Management

Alternative-asset managers say they are enforcing risk- management measures as they expand. Traders at BlueCrest face having their capital allocations cut in half if they lose 3 percent of the money under their management, according to a person with knowledge of the matter. If their portfolio drops a further 3 percent, the trader will lose his allocation and possibly his job, the person said.

Millennium has 145 teams of traders who run their own strategies under risk guidelines set by the firm, according to a person with knowledge of the company.

Rule makers have been crafting legislation with the idea of enabling “risk to transfer itself into the so-called shadow- banking community, where it would be put into relatively small repositories that will be relatively insignificant if they fail,” said NYU’s Smith. If these hedge-fund firms fail, he said, “the real question is, to what degree will the market suffer from it.”

Bloomberg News

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