If risk remains more expensive for lenders, leverage could
continue to come down
By Michelle Celarier
Are hedge funds still on the brink of an ice age? That's what
Donald Putnam, managing partner of Grail Partners, thinks. If
the subprime crisis is an asteroid that hit the credit markets,
as he suggests, it's the aftershocks that will cause all the
trouble. "What killed the dinosaurs was the dust in the air
starving the plants, which starved the herbivores, which
starved the carnivores," says Putnam.
Of course, the food for most hedge funds is financing, and
the question now is whether the ongoing mortgage and structured
credit crisis will raise the cost of risk for lenders,
eventually starving many hedge funds of leverage.
As a result, he believes "the constraint in hedge fund
performance over the next couple of years is not going to be
the ability to find assets, but...