July 31 (Bloomberg) -- Jeremy Grantham, the money manager who oversees $150 billion as chairman of Grantham, Mayo, Van Otterloo & Co. LLC, said credit-market declines may force as many as half of all hedge funds to close in the next five years.
The loss of investors' appetite for risk also may cause at least one global bank and ``one or two'' of the largest private- equity firms to go out of business, Grantham, known for his pessimistic outlook, said yesterday. The 68-year-old investor said he's still bullish on emerging-markets stocks.
Hedge-fund firms such as Boston-based Sowood Capital Management LP have collapsed as investors shun riskier debt including subprime mortgages and loans to fund buyouts. Bill Gross of Pacific Investment Management Co. in Newport Beach, California, said on July 24 he sees ``severe ramifications'' for some investors who had benefited from cheap borrowing costs.
``Probably the most stretched silly credit that ever walked the face of the earth was subprime, and that was the start of it,'' Grantham said in an interview in his Boston office. ``And then you started to see more of the fixed-income market getting contagion.''
A total of 717 hedge funds closed last year, leaving 9,800 in business, according to Chicago-based Hedge Fund Research Inc. Fund raising by new hedge funds was hurt by the September collapse of Greenwich, Connecticut-based Amaranth Advisors LLC, which lost $6.6 billion betting on natural-gas prices.
