Its Worse This Time - Says Former LTCM Partner

Hans Hufschmid, former partner at Long-Term Capital Management, is stressing how this time around it is much worse than it was in 1998 when LTCM went under (see Bloomberg article). The main reason? This time it affects everyone. Given that hedge funds benefit and even survive on credit and leverage, current liquidity issues are forcing many to take less exotic and esoteric positions, essentially reducing flexibility and opportunity. Of course, it is easy to forget that it was not exactly a picnic for everyone after the LTCM collapse, but intervention by the Fed did soften the impact. As mentioned in a previous post, July has been a bad month for hedge funds, with data from Hedge Fund Research showing that on average funds fell 2.4 percent in July and are down 3.5 percent year-to-date. Furthermore, daily net asset value estimates are down 2.8 percent in the month. As a result, fewer funds are starting up, and some smaller funds are closing down, crowded out by larger players with better liquidity and capital, although emerging hedge funds may be outperforming (see previous posts here and here).