Hedge Fund Consolidation Alive & Well

The FT reported today this article about Hedge Fund Consolidation:

Now, I don't know if I am just a mad pessimist or instinctively cautious about $1.8 trillion in assets being dominated by the top 100 firms in the Hedge Fund Industry.

This industry is unlike others in that they do not produce anything except profits or losses for its investors by buying and selling paper. OK, so what right?

Well, as we know already, one serious misstep by any fund can force a liquidation of that fund and therefore roil markets IF that fund has substantial enough holdings to force an industry markdown of "paper" assets. With consolidation this risk rises exponentially.

Having as the FT article points out nearly 70% of the industry's assets in the hands of 100 firms it is safe to assume a collapse of one of these large firms could wipe out $20 plus billion of cash from one firm when if leveraged say 6 to 1 could be $120 billion hit in asset values in short order.

These kinds of shocks are not to be taken lightly. With this kind of consolidation taking hold in the Hedge Fund Industry it is time to look at forcing transparency or if not down right regulation. At a minimum the industry should be forced into industry / government meetings on a regular basis so that governments and central banks can maintain a handle on asset prices, leverage and daily potential risks of the major firms.

Latest Mortgage Crises Solution Update

I am pleased to have read today another contemplation initiated by the Treasury to create a fund with the purpose of providing additional liquidity to the mortgage markets.

My only fear is the amount being considered is less than 1/2 of what I believe is needed overall. The number mentioned in the article I read on Marketwatch.com today was $100 Billion. I estimate this is enough to bail out Wall Street but not "Main Street".

This fund must be focused in its objectives and monitored by the Feds, not the Wall Street firms. They should pony up the cash but not be responsible for what the fund buys and sells.

The article can be read here: Banks, Treasury Discuss