US hedge funds face D Day crisis HAMISH RUTHERFORD CITY CORRESPONDENT HUNDREDS of US hedge funds face a D-Day stampede for the exits tomorrow as investors, scarred by huge losses, look set to rush to demand their money back.
In what Wall Street traders describe as a "shoot first and ask questions later" mentality, "everyone from the wealthy to chief investment officers are now shunning risk and scrambling to get out".
Many hedge funds require a 45-day notice period for withdrawal. To pull out before the end of the third quarter, investors have to notify their managers by close of play tomorrow.
US investors are far from convinced the crisis in financial markets is over.
But London and continental markets rallied strongly yesterday. The FTSE 100 index of Britain's leading shares rose 180.7 points, just under 3 per cent, to 6,219 points, erasing more than three-quarters of the losses which put the world on alert on Friday. Leading indexes in Japan, France and Germany all rose.
But the mood on Wall Street was much more mixed as further hedge fund "skeletons" tumbled out. Large swings in the Dow Jones index throughout the day testified to fears that the "perfect storm" in financial markets has further still to rage and that more shocks lie in store.
Investors have been appalled at how some of the biggest names in the $1.75 trillion hedge fund industry have been brought down by exposure to US subprime mortgage debt and the subsequent flight from higher-risk assets.
David Jones, chief market analyst at CMC Markets, said: "It would be naive to think the worst is behind us."
Charles Stanley analyst Jeremy Batstone agreed, saying yesterday's rebound in London was unlikely to mark the end of the volatility.
"This entire period of economic expansion has been built on a vast amount of debt," he said. "Increase the cost of that debt, tighten loan conditions and one might be in for a bit more than just risk aversion."
Among key developments yesterday were:
• The European Central Bank injected a further 47.7 billion (£32.3bn) into the banking system to soothe rattled credit markets. And it took further intervention by the Bank of Japan before Tokyo rallied. Japan's central bank injected ¥600bn (£2.5bn) into money markets.
• Investment bank Goldman Sachs and investors including former AIG Group chairman Maurice "Hank" Greenberg are to pump $3bn (£1.5bn) into a hedge fund that has fallen more than 30 per cent this year. Goldman's Global Equity Opportunities fund, which had a net asset value of $3.6bn before the infusion, is the third Goldman-managed hedge fund to be hammered in the market turmoil.
• Private equity firm Kohlberg Kravis Roberts said yesterday it has been asked for information from US antitrust authorities. The request is in connection to the Justice Department's ongoing investigation of private equity firms. The government is trying to determine whether they have engaged in conduct prohibited by US antitrust laws.
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