Recent events in the credit markets, coupled with tightening of liquidity, have again highlighted the fragility of hedge fund credit lines. The evaporation of lender balance sheets reminds hedge fund managers that three common sense commandments of basic financial structuring remain prudent and timeless.
1) Know thy lender. Borrowers should know and fully understand the lendersâ funding sources. Many hedge funds were caught off guard when seemingly infallible bulge-bracket banks and dealers were forced to freeze or terminate hedge fund financing arrangements.
