Hedge Funds ‘Particularly Vulnerable’ To Market Unwind On ‘Crowding Risk’

Hedge Funds ‘Particularly Vulnerable’ To Market Unwind On ‘Crowding Risk’

Hedge funds are at risk of a particularly painful experience in the event the market suddenly rolls over in the face of mounting risks to the outlook and rising fears of a recession in the US. That's one takeaway from the latest edition of Goldman's hedge fund trend monitor, which shows that the average fund holds 69% of its long portfolio in its top 10 positions. The figure was 57% a decade and a half ago. (Goldman) Meanwhile, turnover continues to grind ever lower, with just over a quart
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4 thoughts on “Hedge Funds ‘Particularly Vulnerable’ To Market Unwind On ‘Crowding Risk’

  1. It doesn’t matter if the hedge funds’ risk is concentrated.

    The mega stocks they hold are more liquid than the average stock……if they have to sell, they have to sell whatever they have, and it’s much easier to sell big, liquid stocks…….. which also have liquid options for hedging.

    1. well, right, but the problem for everyone else when they “sell what they have” is that “what they have” is a big pile of exposure to the names that matter most to the broader market, so when they start dumping that, it’s a problem.

  2. Concentrated crowds chasing the same party punch?

    It was the year (2017) of the “trillionaires,”
    with the top ten firms capturing some 90 percent
    of positive flows (Exhibit 16, next page). Starkly,
    no firm that posted more than $30 billion in net
    flows last year had less than $1 trillion in AUM (assets under mang)

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