Posts filed under “Hedge Funds”

When Genius Failed

A financial firm borrows billions of dollars to make big bets on esoteric securities. Markets turn and the bets go sour. Overnight, the firm loses most of its money, and Wall Street suddenly shuns it. Fearing that its collapse could set off a full-scale market meltdown, the government intervenes and encourages private interests to bail it out.

The firm isn’t Bear Stearns — it was Long-Term Capital Management, the hedge fund based in Greenwich, Conn., and the rescue occurred 10 years ago.


If you haven’t read When Genius Failed, you are missing out on the best narrative about the credit crisis — not the 1998 version, but the current situation.

The parallels are astounding. I reread the book this past summer, and found it amazingly similar: Over-leveraged firm, which ultimately has too little capital, buys lots of thinly traded, hard to analyze, difficult to value paper.

When the market for some of this paper seizes up, the firm goes bust.The book deservedly was named one of the “Best Business Books of 2000.”

Lowenstein wrote an extensive essay on the 10th year anniversary of the collapse of LTCM.  You should definitely read the book, but if you don’t get to it, you should read the essay:


In the wake of Long-Term Capital’s failure, Wall Street professed to have learned that even models designed by “geniuses” were subject to error and to the uncertainties that inevitably afflict human forecasts. It also professed a newfound respect for the perils of borrowing. Whether this wisdom endured may be judged by events of the past year, when not only Bear Stearns but also scores of banks and financial institutions have written off hundreds of billions of dollars — a result of blithe faith in models of the housing industry, not to mention a voracious hunger to do business on credit.

Regulators, too, have seemed to replay the past without gaining from the experience. What of the warning that obscure derivatives needed to be better regulated and understood? What of the evident risk that intervention from Washington would foster yet more speculative behavior — and possibly lead to a string of bailouts?>


Long-Term Capital: It’s a Short-Term Memory
NYT, September 6, 2008

Category: Bailouts, Books, Derivatives, Hedge Funds, Markets

Andrew Lahde: Goodbye!

Now, this is how you close a fund!

Andrew Lahde, manager of a small California hedge fund, Lahde Capital, burst into the spotlight last year after his one-year-old fund returned 866% betting on the subprime collapse. Last month, he took his ball and went home. Tired of the stress, he closed the fund.

Today, Lahde passed along his "goodbye" letter (via FT Alphaville and, a snarky "Up Yours" to those who do deserve it.


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Category: Hedge Funds, Psychology

New Hedge Fund: Strategery Capital

Category: Hedge Funds, Politics, Taxes and Policy

Trusting the Hedgies

Did you get your hedge fund redemption demand in yet? The window closes today! >

Category: Hedge Funds, Investing, Trading

Hedge Fund Equity Exposure (Long/Short)

Interesting chart via Sentiment Trader: We see Hedgies are now as short as they were in 2004. > > I am not sure that hedgies are that short, but that’s merely a low confidence anecdotal info. I’ll ask Sentiment Trader where they get this data from.

Category: Hedge Funds, Psychology, Short Selling, Trading

Dear Investor….

Category: Credit, Currency, Finance, Hedge Funds, Short Selling

Is the Market Still a Future Indicator?

Category: Apprenticed Investor, Hedge Funds, Markets, Trading, Valuation

Hedge Fund Winners and Losers

Category: Hedge Funds, Trading

Paulson & Co Opening New Fund to Re-Capitalize Banks

Category: Derivatives, Hedge Funds, Short Selling, Trading

Corporate Bailouts Through History

Category: Corporate Management, Credit, Derivatives, Federal Reserve, Hedge Funds