When hedge funds attack

The financial crisis has combined with catastrophic performances among hedge funds to decimate the fund derivatives industry, staunching new deal flow and causing many banks to pull out of the business. Mark Pengelly reports


Hedge funds changed shape in 2008. From being seductive sources of so-called alpha, they swiftly morphed into demonic and difficult-to-control investments, startling dealers and investors alike.

The industry is believed to have endured its worst-ever 12 months in 2008, both in terms of investment returns and redemptions (see box). Spiralling redemptions have forced many hedge funds and funds of funds to impede outflows to protect their remaining investors. This, in turn, has hampered attempts by

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