Is the hedge fund industry façade cracking?

Last week I wrote about that high correlations of hedge fund returns to the S&P 500 was a bad sign for the hedge fund industry here. This weekend the Sunday Times reports that Crisis grips European hedge funds, that:

Up to 10 European hedge funds have suspended redemptions after investors clamoured for their cash when the managers made severe losses.

A London prime broker told The Sunday Times that even before last week’s extreme gyrations, nearly two-thirds of London-based hedge funds had lost between 4% and 10% of their value. A “significant number” had lost much more, he said.

The manager of one of Britain’s biggest hedge funds said: “It’s been an extraordinary week. Even in the crash of 1987 I don’t remember so much carnage.”

I believe in the "cockroach theory" of trouble in financial markets. When you see one cockroach, there are usually more.