February 12, 2008 | Leave a Comment
Its official. Sailfish Capital Partners has gone belly up. Expect more funds to follow in the next couple of months. We don’t like to see hedge fund blow up, but this quote in the New York Times article by Mark S. Fishman, ”a pedigreed money manager who raised billions of dollars at the height of the hedge fund boom …” might say it all:
Hubris? You tell us.hedge fund, hedge fund blow ups, sailfish capital partners
February 6, 2008 | Leave a Comment
Chicago’s Hedge Fund Research released a statement saying that January was the worst month for hedge funds since 1998 — according to their data. While reading some of the other blog postings about this “news” I was struck not by the postings themselves, but the comments to the posts. A number of things became apparent … first that many people have no idea what hedge funds are or how they operate, and two, many people are under the impression that hedge funds are (by definition) hedged, so they can’t understand why so many hedge funds seem to suffer during periods like this.
Ah, if only all hedge funds were hedged! The world would be a simple and straightforward place. But seriously, times like this are productive because the weak are culled from the herd. I wouldn’t be surprised to hear of many hedge fund managers rebounding soon.
Here is the story as the Financial Times (FT.com) covered it:
hedge fund, hedge fund blow ups, hedge funds, wealth investing
September 4, 2007 | Leave a Comment
An interesting story from Fxtraders.eu (subscription required) … Evidently, while some hedge funds focused on mortgage backed securities have suffered losses (that have been duly noted in the press) related to the decline in the sub-prime mortgages space, many hedge funds have also been able to generate profits as a result of its decline. Well, I must admit that I don’t mind pointing out that we told you so. Consider what we blogged on July 19th:
It certainly seems that some hedgies positioned themselves well and are now benefiting from the subprime collapse …
Even with some hedgies profiting from the subprime mess, you probably won’t see the mainstream press write about it much — at least not for a few more weeks. Fortunately, investors can be smarter as we reported in July …
August 31, 2007 | Leave a Comment
There is a lot going on today with the subprime situation, etc. So, for the sake of brevity, here are some of the more compelling headlines today …
And for a bit of fun, our friends at Fintag have some scoop on the Wall Street sequel, Money Never Sleeps
Gekko is back – as a hedge fund manager.
August 30, 2007 | Leave a Comment
Well, times are definitely a changin’. The SEC continues to monitor the hedge fund industry for fraud and they now have a new rule meant to deal with it. As the FT reports …
HFL says: The SEC needs to find Jimmy Hoffa and bring him back from the dead. Instead of trickling out little rules here and there over time, Jimmy would simply impose the regulations all at once (we all know its coming anyway).
Another hedge fund bites the dust: Basis Capital is now dead and ready for burial. Another victim of the subprime situation.
HFL says: Check out hf-implode.com. They have a nice run through of the Basis situation.blow up, crash, fed, hedge fund blow ups, hedge funds, implosion, SEC, subprime, wall street
August 24, 2007 | Leave a Comment
Matthew Rothman at Lehman Brothers recently published a research piece in order to explain why market neutral/statistical equity arbitrage funds were getting trounced in July and August. In short he concluded that a massive unwind of positions by multi-strategy funds and other forced sellers has caused systemic perverse performance of factor models (i.e., even though value investing makes a lot of sense, it’s not working). So the real noodle scratcher here is that there are hundreds of quantitative hedge funds and prop desks with fancy, “differentiated” models and all sorts of bells and whistles, but at the end of the day, after all of the hocus pocus, most funds have the same long and short positions. Has no one been able to build a better mouse trap, or is everyone still buying into the old University of Chicago value and momentum approach? Whatever happened to artificial intelligence, principal component analysis, correlated pairs, and all of that other jazzy stuff? Hey, they may not have always worked, but at least they were differentiated and added real diversification to portfolios.
A word of advice to budding start ups: make sure you are really differentiated. Before you launch, speak with your potential investors, learn what’s in THEIR portfolios and determine how your system can diversify and enhance their overall program, and then tweak if you have to. Index product is becoming more abundant and cheap; think hard about how you will compete.arbitrage, crash, hedge fund blow ups, hedge funds, investing, money
August 8, 2007 | 2 Comments
Reuters reported that hedge funds have suffered one of their worst weeks of performance in years. Hmmm. Now, as you can imagine, at HFL, we have seen our fair share of hedge fund start ups over the years — and believe me when I tell you we could tell you some great stories. We’ve been contacted by guys thinking they could start a hedge fund because they could make money on Ebay, folks who wanted to start a hedge fund based on the fine art purchases (we never could figure out how this particular strategy was “hedged”) and the son of a Texas tycoon who later decided to grow hemp for a living (no, his proposed hedge fund strategy was not the farming of hemp). He only engaged in that when no one would seed his hedge fund idea (we didn’t want to touch it either). I believe he spent some time in the can.
But my point here is that everybody and their mother has jumped onto the hedge fund bandwagon. It is time for some shake out and to get rid of the pikers. Books such as Hedge Funds For Dummies hasn’t helped.
Let some of the ships sink. The industry will be better off for it.crash, hedge fund blow ups, hedge funds
July 19, 2007 | 1 Comment
The main stream media has done it again, and the latest feeding frenzy is the sub prime mortgage sector. Sure, we all knew that money on the street was too cheap and consumers have been over extending themselves, particularly with respect to housing. But as with every other panic selling situation the media has fanned the fire which has resulted in numerous hedge fund blowups, closures, and liquidations. It’s understandable; mainstream investors gather the bulk of their intelligence from the newspaper. These investors, trustees and board members then turn to their fund of fund managers and institutional allocators for answers. The typical response, however, is to put in redemptions first, and ask questions later. Rather than allowing their managers to position themselves for great buying opportunities, the average allocator prefers to exacerbate illiquidity and losses by forcing their managers to sell. This is an age old problem within the markets and is likely to continue in cycles for decades to come.
As structured finance becomes more sophisticated and complex, however, the potential for disaster is magnified. In particular, structurers continue to repackage questionable securities, or repackage subordinate tranches of other structured securities in order to garner an “investment grade” rating. This works well as long as someone is buying, but once liquidity is required, the house of cards begins to collapse. Smarter investors, however, are becoming more adept at understanding fund flows and the media impact therein and are employing proper liquidity management tools (i.e., leverage facilities, lock ups and redemptions terms, etc.).
So why is HFL jumping on the bandwagon with commentary on the sub-prime issue? Well, it’s all about low hanging fruit. As we have seen in the past with excessively oversold markets (e.g., distressed in 2002 and converts 2004 and 2005), the smart money is ready and waiting to buy at the bottom and reap years of rewards while the mainstream sits on the sidelines and licks their wounds inflicted by painful forced liquidations. Consider this HFL’s call out to all players with experience in the sub prime sector: now is the time to start thinking about ramping up your own sub-prime vulture funds! Whether you’re a victim of a downsized prop desk or a shuttered hedge fund, now is your chance to strike gold.
Will mainstream investors think you’re crazy for starting a sub prime fund? Certainly. There will, however, be no shortage of astute investors that understand the signs of an oversold market and smell the opportunity for huge profits. Furthermore, expect barriers to entry and competition to be low at this stage of the game. Given the recent press, don’t expect capital raising to be a slam dunk. Focus on a few core investors that are educated enough to understand the game. Then, after 12 months of outsized returns, expect a significant ramp up in AUM. Just be mindful of your asset liability matching; fund liquidity management will be a topic of future posts.hedge fund blow ups, hedge funds, investing, investors, securities, structured finance, subprime
July 18, 2007 | Leave a Comment
Most folks following the financial news are already aware of this …
Wow.bear stearns, hedge fund blow ups, hedge funds, investors, securities, stock market, subprime, wall street