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In association with Hedge Fund Intelligence |
"May you live in interesting times." The potent mix of blessing and curse embodied in the ancient Chinese saying – with its dual tone of opportunity and threat – will be resonating with hedge fund managers trying to navigate their way through this market crisis.
With banks scared to lend even to each other – and deeply nervous of the exposures and losses that their counterparties (and they themselves) might have – the resulting credit paralysis has been a dangerous and scary phenomenon.
Until the banks collectively reassure themselves that they are not all deep in the mire – which might happen soon or might take a long time – it will be extremely challenging to run any kind of investment business that requires any element of leverage and that assumes any normal level of liquidity in the underlying markets, particularly in anything to do with structured credit.
Sideshow
This is first and foremost a crisis of capital and confidence within the banking system, in which hedge funds are a relative sideshow.