There’s an interesting and timely paragraph about Apple buried in the middle of Scott (“The Finance Professor”) Rothbort’s latest primer on hedge funds (Hedge Fund Liquidations: Five Things You Need to Know).
He’s explaining how hedge fund investors — technically, limited partners — are only allowed to withdraw money on an quarterly or annual basis, which can result, when a fund is performing poorly, in a rush of redemptions that resembles a run on a bank.
To meet those redemption requests, a hedge fund leveraged 5 to 1 will have to sell at least $5 of investments to meet every $1 of redemptions. (And 5 to 1 is conservative; a hedge fund can, in theory, be almost infinitely leveraged.)
This is where Apple comes into Rothbort’s primer:
Investors pulled a record $43 billion out of U.S. hedge funds in September, according to the
, a month in which Apple fell more than 60 points (36%), from $166 a share to $105.
What makes this timely?
Another run on the hedge funds could be just around the corner. Some experts anticipate a flood of redemption requests around Nov. 15, the notification deadline for investors who want to get their money out before the end of the year. (Most hedge funds insist that investors notify them of their intentions 45 to 65 days before the end of a quarter; see here. Last quarter’s notification day was Aug. 15, and Apple got hammered from mid-August to early October.)
Apple investors, fasten your seatbelts. You could be in for a bumpy ride.
[Thanks to “cramar” at TMO’s Apple Finance Board for the tip.]