Brokerages Get Tough on B-List Hedge Funds

With financing cut, look for many to merge or collapse
By Jason Farago,  Newser Staff
Posted Feb 17, 2009 8:30 AM CST
Brokerages Get Tough on B-List Hedge Funds
The floor of the New York Stock Exchange, Wednesday, Jan. 7, 2009 in New York.   (AP Photo/Henny Ray Abrams)

Brokerage firms are cutting their financing and support to hundreds of hedge funds, reports the Wall Street Journal, delivering a further blow to what was the highest-flying sector of American finance. As they attempt to shore up their own positions, the banks are dividing their hedge fund clients into two categories: ones that can probably ride out the turmoil, and "B-list" funds whose future is less rosy.

Until recently banks competed fiercely for even the riskiest of hedge funds, aiming to lend them money and handle their securities via "prime brokerages." But as the parent companies of those brokerages teeter, the hedge funds they courted now find themselves shut out. The upshot: many funds will have to merge, find new and costlier financing, or close completely. (More hedge funds stories.)

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