Hedge funds are promising quicker cash-outs than ever for investors—but there's one only problem, Barclays says: That type of liquidity just isn't realistic.
Since 2008, hedge funds have reduced cash redemption time by roughly 45%, but the assets they're invested in won't sell that quickly.
Now, if funds get redemption requests faster than they can liquidate, funds could put a freeze on redemptions, Business Insider reports, which could send shock waves through capital markets.
That's exactly what happened in December, when mutual fund Third Avenue—packed with risky debt—put a stop to investor withdrawals, citing inability to exit positions quickly.
The fund's liquidation then triggered a wider bond selloff from concerned investors. "If liquidity terms look like they are too good to be true," Barclays says, "they probably are." [BI]
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