Hedge funds need to sell off a further USD200bn in assets to meet their objectives on deleveraging, according to a survey by US research firm Sanford C. Bernstein, with 63 per cent of hedge fund managers saying the sale of assets to cut leverage was at least half completed and 23 percent saying that the process was three-quarters finished.

In recent years hedge funds have used increasing quantities of leverage to boost trading profits, but the market turbulence over the past 15 months, including a drastic reduction in the availability of credit, has forced managers to sell off assets to deal with tighter lending restrictions and raise cash to meet investor redemptions.

Investors pulled USD40bn from the hedge fund industry last month and market losses cut industry assets by a further USD115bn, according to Hedge Fund Research. Around 52 percent of managers surveyed by Bernstein said the wave of investor redemptions was essentially complete and outflows to clients would be over by the end of March next year, but 41 percent think half of the redemptions are yet to come.

If hedge funds are putting assets up for sale, who are the buyers? Certainly there are some hedge funds and other investors looking for cut-price acquisitions. But in the current market, how do you determine the value of financial and other assets? And where is the financing coming from? These are all questions that hedge fund managers are asking themselves in the current climate as they wait for the merry-go-round to stop.