Fund Outlook “Sucks Worse' Than 1998, LTCM Veteran Sez

The $1.9 trillion hedge fund industry, mired in its worst performance in two decades, faces ``much suckier'' conditions than in 1998, when Long-Term Capital Management LP collapsed, a veteran of that fund said.

``It's definitely a trickier environment,'' said Hans Hufschmid, chief executive officer of GlobeOp Financial Services LP, and a former partner at LTCM and co-head of its London office. ``The market is much worse that it was in 1998. Then it was just LTCM, but this impacts everybody.''

Hedge funds are concerned for the first time about risks related to prime brokers after Bear Stearns Cos.' forced merger with JPMorgan Chase & Co., said Hufschmid, 52, whose London-based company is administrator to funds managing about $104 billion.

Banks and brokerages have written down $495 billion and raised $356 billion in capital since the start of 2007 as the U.S. subprime mortgage market collapsed. Banks' increasing reluctance to lend has hurt hedge-fund operations, Hufschmid said in a telephone interview yesterday.

``Hedge funds live on credit and leverage and the ability to finance esoteric positions for a long time,'' said Hufschmid. ``To the extent liquidity is drying up as it is now, that becomes more difficult.''

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