Tag: hedge funds

Not a good start to the holiday season for hedge funds

Feet in the flames, or just being kicked while they’re down?

Either way, hedge fund managers across most strategies are getting an earful. Performance (with managed futures the exception, likely due to the distinct downward trend in commodities prices), is getting walloped. High water marks (i.e. having to recover previous losses before performance slices can be paid out) mean many funds will be digging themselves out of their hole for some time to come.

Meanwhile, investors aren’t waiting around to see if traders are good with a spade – they are running in the other direction, at a pace of over $100 billion for October alone. And to add insult to injury, the top dogs are now testifying before Congress – in other words, they are trying to justify their existence to a group of people who barely possess the mental faculties to wipe their own behinds let alone understand how buying a bond while shorting the issuer’s stock leads to price discovery the rest of us schleps can benefit from.

Happy holidays?

Dear Investor…

This letter is to inform you that the wheels have come off of the proverbial wagon at ACME Systematic Leveraged Macro Momentum Fund LP, and that the same awesome thematic portfolio that made you feel (in the first half-year) as if you’d become very rich in comparison to those sucking wind on their leveraged MBS portfolios or Japanese Small-Cap Value Funds, has, quite literally, spontaneously combusted in our faces.

On and on this obvious second-quarter fund form letter goes. Simply hilarious.

(h/t The Big Picture)

When you chips are down, look at the bright side

Something of a cliché – just don’t hit me if you’re down too.

Eric Savitz of Barron’s Tech Trader follows today’s “downs” and yours truly puts some much needed spin on it:

  • Charles Schwab’s online trading was down all morning [Editor’s note: along with position reporting, etc. etc. and even the dang login screen, for a while at least]. But look at the bright side: the market was down 300 points, yet managed to bounce back. Why? Schwabies couldn’t dump their stock.
  • Skype is down, and Mr. Savitz can’t check for blog reactions at Technorati either. But look at the bright side: Skype is rarely down – I can’t even remember the last time it was down. And Technorati? Well they’re always down, so who cares?
  • Trading was halted in Dell shares. But look at the bright side: maybe they’ll quit sending all those fricken catalogs.
  • And while we’re at it…

  • Red Robin’s profits are down. Maybe instances of heart disease will follow that direction.
  • The amount of outstanding commercial paper is at it’s lowest level since the 9-11 attacks. And, there haven’t been any recent instances of airliners getting purposefully plowed into very large office buildings.
  • Last but not least…

  • The secondary mortgage market is getting pummeled, and many hedge funds are getting pummeled. But some crafty web entrepreneurs are having fun with it.
  • UPDATE: STOP THE PRESSES – Some German physicists have broken the speed of light! And as any student of Einstein’s theory of relativity should know, this means we may soon be able to travel back in time. Absolutely nothing to worry about now.

    My missing hedge fund letter

    There are some cracks being made about Bear Stearn’s recent hedge fund meltdown. I doubt we’ve seen the end of it (meaning the jabs or the meltdowns). But I do have to give Bear Stearns credit for actually getting a letter out that told the worst possible news, as it’s more than I can say for other’s efforts.

    Some time ago, I was touched by the Refco fiasco, having been an investor in one of the funds they managed. I never saw it coming, and I never got a letter either. The brokerage at hand simply wiped the balances and cried innocence. When I inquired about the matter, I was told that I should have read “the letter.” What letter?

    Of course, I did get “the letter” after that, and it recommended that all investors of XYZ immediately put in sale orders. Would have been nice to get that letter around the time it was dated (which was five months prior to my actually getting it). As it turns out, it wasn’t much money (although it was in a retirement account so I didn’t get a write-off), and I knew the rules (almost too well, in fact) going into it. It’s a cautionary tale, and one that makes me think Bear Stearns is just the tip of the iceberg, much as the inability to find a seat in a day-trading office was an ominous sign during the late 90’s.

    We’ve been in a big wealth creation boom, meaning a lot of folks now easily qualify as “accredited” investors in accordance with regulations. So we have a lot of people and small charities, etc. over the hump of those rules (which are outlined in Reg. D/501), pouring assets into private funds.

    I don’t think they should all be there. And I won’t be surprised when a lot of them don’t get their letter.

    A precursor to problems?

    Any time a financial dealing is subject to side agreements, shell entities, or any other type of undisclosed arrangement, there is bound to be trouble waiting in the wings.

    Hedge funds need an “edge” to trade profitably in these volatile markets. And with ever greater amounts of money chasing the same inefficiencies, any “edge” one has is eventually going to diminish. For a while the pundits have been saying that the growth in hedge funds was bound to turn, and when it did there would be hell to pay. If hedge funds’ growing use of “side pocket” accounts is any indication, that trouble may be just around the corner.

    While one hedge fund might have seemed too big to fail, it did. There is nothing to suggest a lot of little ones can’t fail as well.