“No matter how you cut it, it’s been a rough year for the hedge fund industry,” says J. Christoph Amberger, editor of Today’s Financial News.

These funds may soon be forced to sell off their assets – many of which are commodities.

J. Christoph says this have a market-flooding effect… and weigh heavily on commodities prices.

This from Today’s Financial News:

Economics professor Nouriel Roubini now considers it possible that we could see a run on thousands of highly-leveraged hedge funds. Hundreds of smaller funds that have taken excessive risks with high leverage and are poorly managed may disappear, wiping out billions in capital. Roubini considers a massive shakeout of the bloated hedge fund industry likely in the next two years.

According to EuroHedge, a hedge-fund data provider, 272 individual funds strategies were launched during the first six months of 2008, the lowest for nine years. In the same period, 243 have been liquidated, the highest in a six-month period.

Average performance is on the low side. Some top funds are down 20, 30, even 40 percent.

Investors could have lost that much money doing their own trading.

Insiders have hinted that hedge funds could have an unprecedented level of cash pulled out by investors this quarter. Some funds have suffered significant declines in value or even temporarily halted redemptions.

A big problem of hedge funds is the extent of leverage. Many had to write down exposures to investments in risky instruments – including collateralized debt obligations and asset-backed securities like high-risk mortgages.

The recent crash in commodities plays has also choked off new capital inflows… while increasing redemption pressure.

Funds soon may be forced to sell their better assets to raise capital. That means a potential – and quickly accelerating flood of commodities will hit already instable markets.

The result will be a destruction of commodities valuations on a similar scale as we’ve seen in the financial and real estate sectors – wiping out those investors who sought out the treacherous shelter of hard assets as “inflation hedges” and “real money”.

PS: J. Christoph says he and his team of analysts will be serving up protective profit strategies on TodaysFinancialNews.com every day. Simply click on the following link to take advantage of their free email alert TFN eNews. You’ll also receive TFN’s crisis investing report, The 3 Best Small Caps to Own This Fall.

Source: The Great Hedge Fund Extinction