Expect More Hedge Fund Pressure

The letters go out at the first of the month for places we think of citadels and fortresses of capital. They read like this: "Our performance is X vs. the S&P, and we see multiple opportunities and we have lots of cash. We have never been in better shape, and we are excited about the great possibilities we see."

The letters go to sophisticated investors, institutions and funds of funds.

The first two pretty much take them in stride. They've made a lot of money with these hedge funds, and they aren't sanguine but they aren't panicked.

And then there are the funds of funds. These people are supposed to be the keepers, the shepherds of the money. They are desperate to try to keep their jobs and demonstrate that they are being fiduciaries. They are basically saying, "Our raison d'etre is on the line." That means they have to pull the money.

They have five days to notify the hedge funds they want their money out unless there is a lockup or if the hedge funds have decided to abrogate their contracts, which is completely on par with the nonsense of this industry.

That means that right now the hedge funds are getting the funds of funds' letters. There was so much marking-up going at the end of the quarter by these citadel/fortresses of brilliance that they might have escaped the worst of performance. And there might be funds of funds people dumb enough to buy the "opportunities abound" logic.

But to me, we are seeing some of that fund-of-funds action today, and I suspect a new round of redemptions is upon us without federal bailouts, although many of these hedge funds have convinced Treasury that they could be Lehman-like if they fail, and that they must be able to make a lot of money not to lose key talent if they are bailed out.

If I have one wish if it comes to the Obama campaign, it is that hedge funds won't be bailed out.

Wishful thinking?

I bet we shall soon see!

Random musings: Wells Fargo's (WFC - commentary - Cramer's Take) offering is a great buy, I think. ... Cisco (CSCO - commentary - Cramer's Take) looks fine. ... I think Quanta (PWR - commentary - Cramer's Take) was a case of hedge funds gone wild...

At the time of publication, Cramer was long Cisco and Quanta.

ALL JIM CRAMER BLOG ENTRIES | POST A COMMENT | READ COMMENTS  

---

Jim Cramer is co-founder and chairman of TheStreet.com. He contributes daily market commentary for TheStreet.com's sites and serves as an adviser to the company's CEO. Outside contributing columnists for TheStreet.com and RealMoney.com, including Cramer, may, from time to time, write about stocks in which they have a position. In such cases, appropriate disclosure is made. To see his personal portfolio and find out what trades Cramer will make before he makes them, sign up for Action Alerts PLUS. Watch Cramer on "Mad Money" weeknights on CNBC. To order Cramer's newest book -- "Jim Cramer's Stay Mad for Life: Get Rich, Stay Rich (Make Your Kids Even Richer)," click here. Click here to order "Mad Money: Watch TV, Get Rich," click here to order "Real Money: Sane Investing in an Insane World," click here to get "You Got Screwed!" and click here for Cramer's autobiography, "Confessions of a Street Addict." While he cannot provide personalized investment advice or recommendations, he appreciates your feedback and invites you to send comments by clicking here.

TheStreet.com has a revenue-sharing relationship with Amazon.com under which it receives a portion of the revenue from Amazon.com purchases by customers directed there from TheStreet.com.