I am reading an avalanche of stories about shakeouts happening in the hedge fund industry. As we mentioned earlier in the fall, we expected many to close their doors because they cannot earn performance fees (generally 20% of all profits) unless they hit a high water mark (i.e. until their investors are made whole they generate none of those fees) so we expected many to just close up shop at the end of the year. (Sep 23: Fee Slump Hits Hedge Funds) But this market has gotten so much worse since we first advanced that idea (Oct 3: Hedge Funds Have Worst Month on Record), and the forced selling from going off of leverage is ruining performance for many others - that their investors will in fact (by walking) force a lot of closures. (Sep 3: Hedge Funds Get Rattled as Investors Seek Exits)

Here is one story out there but I am sure many walk in his shoes

• Only 10 months ago, Remy Trafelet was so flush that he treated about 100 employees at his hedge fund to a getaway in Venice. He and his crew spent a long, luxurious weekend at the five-star Hotel Bauer, which has Murano glass chandeliers, private gondoliers and a splendid view of a 17th-century basilica.
• But now, a bit like Venice, Mr. Trafelet’s hedge fund seems to be sinking. His flagship fund has fallen about 26 percent this year, and Mr. Trafelet is struggling to hold on to anxious employees, as well as some investors.
• Perhaps the most remarkable thing about Mr. Trafelet is that he is not so remarkable at all. Thousands of hedge fund managers like him — mostly young, mostly male and virtually all unknown outside financial circles — confront a sober reality: for now, the days of easy money are over.
• The economics of the hedge fund industry, so lucrative on the way up, are trying even the most seasoned managers on the way down. Hotshots who amassed millions or even billions of dollars from deep-pocketed investors are struggling to persuade those backers to stick with them.