Saturday, September 27, 2008

Hedge Fund Failures

March 6, 2008

Carlyle Capital, a publicly-traded mortgage bond fund, said it received a notice of default after failing to meet margin calls from banks, stoking fears of a wave of hedge fund liquidations and fire sales of assets.

On Tuesday Focus Capital, a $1bn fund in New York, said it was forced to liquidate its portfolio after missing margin calls. Friday saw the implosion of Peloton Partners, a $2bn London-based fund.

August 1, 2008

Expect to see more hedge fails fail this year than are originated, says Philip Duff of Duff Capital Advisors in a CNBC interview. Duff predicts that 2008 will be the first year that will see more hedge funds go out of business than start up.

Duff is the former COO of Tiger Management and former CFO of Morgan Stanley

September 21, 2008

The commercial real estate market in New York is feeling the pain of Wall Street's demise.

With the breakdown of Bear Stearns last spring and the shuttering of scores of hedge funds throughout the year, vacancy rates have edged up to 7.3 percent as of Aug. 31 from a record low of 5.8 percent the year before.

Top Four Causes of Hedge Fund Collapses

1. Improbable Market Events
2. Leverage
3. Investor Redemptions
4. Forced Liquidation or Portfolio Sale

March 9, 2006

Kirk S. Wright and his firm, International Management Associates, appear to have lost the hedge fund's all of the $115 million that they invested.

The failure of Wright's fund adds to a long and growing list of hedge fund meltdowns, large and small. Usually only the larger failures make the news, such as Bailey Coates Cromwell Fund ($1.3 billion), Marin Capital ($1.7 billion), Aman Capital (est. $1 billion), Tiger Funds ($6 billion), and Long-Term Capital Management ($1 billion).

A March study by Capco, a financial-services consultancy and technology provider, f investigated 100 hedge fund failures over the last 20 years and found that half of them failed because of operational issues rather than lousy investment decisions. These include misrepresentations and inaccurate valuations, fraud, unauthorized trading, technology failures, bad data and so on.

"Systemic risk is commonly used to describe the possibility of a series of correlated defaults among financial institutions---typically banks---that occur over a short period of time, often caused by a single major event.

March 28, 2008

Forty-nine hedge funds shutdown in 2007, representing $18.8 billion at their higher valuation, compared with 83 hedge funds that shuttered themselves--worth $35 billion--the year before, as calculated by Absolute Return.


Aug 22, 2008

Earlier this month, former CNBC anchor Ron Insana folded Insana Capital Partners, the hedge fund he launched in 2006, while superstar investor Dan Benton announced that he's shuttering his $2 billion hedge fund Andor Capital Management in October.'s-Hedge-Fund-Closure-a-Cautionary-Tale?tickers=%5EGSPC
Bloomberg story, September 2008

"Ospraie Management LLC, the investment firm run by Dwight Anderson, will close its biggest hedge fund after slumping 38.6 percent this year because of bad bets on commodity stocks.

The New York-based Ospraie Fund fell 26.7 percent in August after a ``substantial sell-off'' in energy, mining and resource equity investments, Anderson said in a letter to investors yesterday."
Hedge funds may be next
'We're going to see five fail for every bank'
September 18, 2008

"We're going to see five hedge funds fail for every bank, maybe more," says Christopher Whalen, senior vice-president and managing partner at Torrance, Calif.-based Institutional Risk Analytics.

The CDS market has ballooned to about US$62-trillion, with hedge funds making up much of the trading before the credit crisis began.

A moment of reckoning for many hedge funds may come at the end of this month, when their exposure to credit default swaps must be "marked to market" to reflect the increased obligations at the end of the third quarter.

It may be a very quiet exercise, however, as most hedge funds are private and report only to their investors. Operating largely outside public markets and regulatory scrutiny, the failures, too, may take place largely behind the scenes and may already have begun.

No comments: