Hedge Funds: A Response to a Run on the Fund
By Sylvia Tolczyk
Commercial Banking, Collections, and Bankruptcy,
February 2026
By nature, hedge funds are highly leveraged and illiquid. Where investors rush to redeem investments, a self-reinforcing downward spiral can spread. This fear causes other investors to also request redemptions, further worsening the problem. When redemption demand outnumbers the fund’s underlying assets, hedge fund managers may face a “run on the fund.”
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