London-based hedge fund Peloton Partners is being forced to liquidate its $1.8bn ABS Fund, saying that it is a victim of the credit crunch. Peloton's founders, Ron Beller and Geoff Grant, both ex Goldman execs, told investors in a letter Thursday that 'credit providers have been severely tightening terms without regard to the creditworthiness or track record of individual firms, which has compounded our difficulties, and made it impossible to meet margin calls'.

The firm said in a separate letter to investors that it had frozen customer redemptions from its $1.6bn Multi-Strategy Fund, which maintains a 'very large position' in the ABS Fund.

Our very own Highly Placed Professional comments on this sorry state of affairs:

'Many of us felt a certain twinge of envy when, a few years back, Ron Beller, then a partner at Goldman Sachs, had several million $ pinched from his bank account by his thieving PA, and he never even  noticed. Some bank account! 

But let's not forget the skill and personal endeavour that got him that kind of wedge in the first place. These City and Wall Street types are the rarest of breed - just like Premiership footballers. We all want to be one. Many are called, but few are 'chosen'. But how the mighty have fallen. Mr Beller's relatively new hedge fund Peloton Partners,  is now winding up its ABS Masterfund, due to market liquidity and pricing problems.

What's  interesting about this sorry tale - it's just another in a long line of failures after all ? Well, here you have another incredibly smart and successful cookie, surrounded by the market's finest, putting his and his investors' money to work, and trying to make loadsamoney (albeit with a dash of leverage). Ron Beller seems like a nice guy too. Charitable, innovative, personable, youthful. All the things we basically admire about market professionals. But what's really amazing is that the ABS fund was up a staggering 87% last year, and won the new fixed income fund of the year award at the last annual Eurohedge bash. 

So, how do you go from hero to absolute zero in the space of a few months?

Peloton Partners' funds have been caught out by the biggest speed bump we've seen in the markets for several generations. There are no buyers of mortgage-backed assets out there, and lenders won't give anyone more credit to meet margin calls. So liquidity  (or the lack of it) has finally killed the  goose that laid the golden egg. You can't mark to model, you can't mark to market and you certainly can't mark to myth!  And lastly, you can't borrow off a lender for all the tea in China. What a mess we're in!'.    

READER COMMENT:

'Everyone assumes that most of these guys are the brightest out there on The Street. The reality is that they have simply had the contacts to borrow cheap money in the short term and leverage in the long term to achieve higher yields. I guess we'll see how bright they really are now'.

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