Biggs: No Hedge Fund Tsunami Ahead

Barton Biggs, managing director of hedge fund Traxis Partners, says he doesn’t see the redemption tsunami predicted by billionaire George Soros and others.

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“For one thing, the panic has abated, and since most funds have losses to make up before they can begin to earn their performance fee again, investors who redeem now are forgoing a free ride,” Biggs says, with the caveat that, of course, a fixed fee remains in place.

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Biggs expects $350 billion to leave the now $1.4 trillion hedge fund market by the middle of 2009, of which $150 billion is already gone. If the remaining $250 billion were to evaporate, no big deal, Biggs says.

The bears are worried about leverage, meaning hedge funds would have to sell two to three times that amount to cover redemptions, he says. Biggs is less concerned.

“Hedge funds have heard the redemption footsteps: They have already sold down their long portfolios and tremendously reduced their gross book and leverage. It is a fact that hedge fund margin debt has been declining since July 2007, and prime brokers report massive hedge fund cash holdings,” he says.