As a torrent of corporate debt hits the market in the weeks ahead, losses could grow for both investment banks and hedge funds, some say. The availability of credit has disappeared, and there are $220 billion of leveraged-buyout loans that need to be financed. One analyst thinks the problem will hit investment banks hard and many more funds be singing the mortgage blues.
Recent results of hedge funds may have more impact on the overall market than those of perhaps any month in recent years. That is because hedge funds have grown so much and increasingly use borrowed money to try to amplify their gains. A crucial date could be Aug. 15, which is 45 days before the end of the third quarter, the date when investors in many hedge funds can give notice that they are pulling out their money.
If new losses emerge on the heels of the recent drop in assets of more than 50 percent by Boston hedge fund Sowood Capital and problems at funds run by Bear Stearns Cos. it could spark worries that more funds will have to sell positions to stay afloat, putting increased pressure on the markets.