Hedge Fund Disaster May Be On The Cards
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Michael Travaglini, executive director over at the $50bn Massachusetts state pension fund, which lost millions of dollars in the collapse earlier this week of hedge fund Sowood Capital, said that 'our fear is that there are more disasters out there. We are not done yet. Right now we are calling all of our funds of funds and are having tough conversations with them'.
Not all hedgies, however, have taken a bath in the recent market turmoil. The Wall Street Journal says that funds run by Hayman Capital Partners surged 60% in July alone, and that New York-based hedge fund Balestra Capital Partners has seen 28% gains during that month. MKP Capital Management and Lone Pine Capital are also thought to have done well from the recent market woes.
Most investment banks, it seems, have only come out smiling if they managed to avoid significant exposure to US subprime lending (the investments which are largely responsible for the current difficulties) - except Deutsche Bank. Although the German bank is being coy about exactly how much money it made, Deutsche analysts said over a year ago that the US subprime mortgage market was heading for a fall. During the first quarter, some of the bank's prop traders then began shorting the subprime mortgage market. Deutsche's CEO, Josef Ackermann, acknowledged earlier this week that 'someone saw an opportunity and that was a good move'.
Many hedge funds and other financial institutions, however, are in pain. Bloomberg reports that French stockbroker and money manager Oddo & Cie is to close three funds totalling $1.37bn after what it describes as the 'unprecedented' crisis in the US asset-backed securities market. Macquarie Bank has warned investors in two debt funds that they face losses of up to 25%, Tudor Investment Corp's Raptor Fund is said to have fallen 9% in July and Caxton Associates flagship Global fund is thought to have dropped 3% during the month. French insurer Axa SA's fund management unit is to invest its own money to shore up two of its own funds, both named US Libor Plus, which have seen falls of over around 21% in their value since early July.
And hot on the heels of the collapse of the two hedge funds Bear Stearns ran, the firm has suffered further embarrassment by halting the redemption in a third fund, the Bear Stearns Asset-Backed Securities Fund, after investors started to pull their money out. Although specific performance data is not available for the fund, it is thought to have suffered heavy losses last month. The good news, however, is that the fund (unlike the two Bear funds that did go belly-up) did not employ leverage, and still has around $50m of cash available. A Bear spokesperson has said that 'we don't believe it's prudent or in the interest of our investors to sell assets in this current market environment'. There are also no current plans to shut the fund.
Although Bear shares are trading at around a 52-week low, and the firm has suffered a huge loss in the reputation stakes over its recent hedge fund problems, executives insist that this will not be allowed to interfere with its plans for overseas expansion - the firm has said that it will increase headcount in Europe from around 1,000 to 3,000 over the next 3 years or so. Staffing levels in Hong Kong are also said likely to double to around 500 in the period. In the meantime, Bear was hit by its first hedge fund-related legal claim Wednesday. A 73-year-old retired insurance salesman who lost $500,000 in the recent debacle has filed a NASD claim against the firm. Industry experts expect this to be the first of many.
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