Posted on 03/05/2008 5:08:31 AM PST by TigerLikesRooster
Hedge fund Focus collapses
By James Mackintosh in London
Published: March 5 2008 02:00 | Last updated: March 5 2008 02:00
Focus Capital, a $1bn New York hedge fund, has been forced to liquidate its entire portfolio after missing margin calls from banks, it told investors yesterday.
The fund, which had produced strong returns by investing in Swiss mid-cap stocks since starting in 2005, is now expected to shut down after losing about 80 per cent of its value.
The collapse is the latest to hit leveraged hedge funds, following the failure of Peloton Partners' $2bn ABS fund last week, and comes as worries are rising that forced sales by hedge funds could drive down prices.
Several other funds specialising in credit are close to crisis, according to investors and consultants, while a few smaller funds have had assets seized by banks or required rescues by investors or allies.
In a letter to investors, the founders of Focus, Tim O'Brien and Philippe Bubb, said it had been hit by "violent short-selling by other market participants", which accelerated when rumours that it was in trouble circulated.
Sharp drops in the value of its investments led its two main banks forcing it to sell last Tuesday, according to the letter to investors.
Several Swiss stocks in which Focus invested plummeted when it sold big stakes last week, including white goods maker Schult-hess Group, in which it held 30 per cent, and food company Hiestand Holding, where it had 32 per cent.
Focus declined to comment on the level of leverage it used, but confirmed it had sold its portfolio after being hit by the plummeting value of its investments.
"It was like an avalanche," a spokesman said. He said the fund started February with just over $1bn under management.
Yesterday, P-Solve Niche Opportunities Fund, a listed London fund, said it had written down its investment to zero, knocking 7.6 per cent off its own asset value.
Focus denied it had lost all investor money, but refused to say how badly it had been hit.
According to hedge fund databases, Focus dropped 8.6 per cent in January in its euro share class, following gains of 33 per cent last year and 112 per cent the year before.
Many other hedge funds investing in illiquid assets, mostly in the credit markets, have suspended redemptions by investors to avoid forced sales. But concerns remain that withdrawals by investors from certain sectors could force more to shut.
Ping!
Not much of a “hedge” were they?..............
loss of focus
Sharks eating their own.
Short-sellers = hedge clippers.
Will this affect Chelsea Clinton’s year-end bonus?
Yawn, so another union pension fund or a movie star takes a hit. Who cares?
...Or a 401k, or IRA, or KEOGH plan. I CARE! My 401k has been losing money................................
Hedge Funds - the casinos of Wall Street
sometime you win - some lose!!
Were a hedge against having to pay capital gains taxes
And this is the so-called “smart” money.
Re post 8, exactly.
If only the evil Soros could get caught.
Somebody please tell Soros is broke. I hate to be so mean, but I would really get a kick out of that. Sorry
No. They’ll take up a collection amongst the Chinese bus boys.
Please note how hedge fund problems began. Multi-billionaires had a hedge fund to guarantee not just that their assets were protected, but to make them enormous amounts of money through leverage. It was called Long-Term Capital Management (LTCM).
Alan Greenspan described LTCM’s clients as “a small number of highly sophisticated, very wealthy individuals” who had tried to get high rates of return.
At the beginning of 1998, the firm had equity of $4.72 billion and had borrowed over $124.5 billion with assets of around $129 billion. It had off-balance sheet derivative positions with a notional value of approximately $1.25 trillion.
(In personal terms, let’s say you had $10,000 in collateral, yet the bank gave you a $263,000 loan based on this collateral. Then with this money, you purchased $2.55 million dollars in stock, on margin. Great deal, if you can get it at those ratios.)
At its height, it was giving these “highly sophisticated, very wealthy individuals”, annual returns of 40% on their investments.
But the hedge fund collapsed. The Federal Reserve Bank of New York arranged a bailout by its creditors, and because the bail out was barely successful, an interesting thing happened.
Suddenly hedge funds started to be created everywhere.
Investors saw only two things. A 40% return, and the unwillingness of the government, in this case Alan Greenspan, to allow “hedge funds” to collapse. Nothing quite like expecting free government insurance on your investment, is there?
The problem with this entire theory is that most of the hedge funds out there today neither produce the huge returns, nor will produce the slightest concern if they fail, except from their investors. “a large number of highly foolish, if not so wealthy individuals”.
Huge year end bonus if Hillary is elected. Kicked to the curb if Hillary isn't.
I wonder if they will be able to claw back any of the fat bonuses they paid out over the past few years...
Thank you for the explanation. Some of these complicated schemes are tough for us non-green eyeshade guys to figure out.
Sub-primes, apparently........
But the hedge fund was allowed to collapse. The investors lost all their money. Hedge funds disappear all the time.
I didn’t. Apparently the various funds and such that my 401k was invested in were.....................
Mutual funds are different than hedge funds.
That’s gonna leave a mark.
Yeah, They don’t lose money as fast..........
Very good summary. Thanks
Too many longs and not enough shorts!
Hedge Funds are no different than going to Nevada and gambling on Texas-Hold’em.
It was a true house of cards from the gitgo.
Think in terms of the Pyramid schemes of the 80’s.
The new $$$ was creating the payouts for the old entries to the pyramids.
LOL - owning 32% of a company is an investment not a hedge. They could have shorted their own stock, at least then they’d be even lol...
Nope, but hedge funds have become, for the most part, unregulated mutual funds for the rich.
Didnt you just have a conversation with a certain someone that thinks he knows everything financial and he was laughing at you calling you stupid all the while saying hedge funds and such dont hurt anyone but the two people involved?
You all have left out the best part of Hedge Funds, the people who run them get 20% of any profits along with a big fee to run them.
So what if the funds fail and collapse. The folks who ran them made a fortune. It’s sooooo easy to fleece the rich, just convince them you can make them MORE money.
Toooooo funnnny!
No "for the most part" about it. These vehicles are not offered to the public and are limited to "accredited investors" as defined by SEC Rule 501(d), although 35 "non-accredited investors" can invest in it without the hedge fund busting its exemption from SEC registration.
Red Badger, don't take this personally, cuz as of now, I am in the same boat, but if you are concerned about the losses in you 401(k), you are not rich enough to have money tied up in these things. Some pension funds or QUIBs (Qualified Institutional Buyers) can put money in these things, but usually have a cap of 5 - 10% "speculative" investments as fiduciary policy. Theorectically, you might be impacted by 1 or 2% in your 401(k), but I doubt it.
Frankly, the only things reliably making a profit the last few months have been commodities, foreign currency, govies, and shorts/puts. Real Estate, stocks, and non-govie bonds have been losers for the last few months.
“At this juncture . . . the impact on the broader economy and financial markets of the problems in the subprime markets seems likely to be contained,” Bernanke said in prepared testimony to Congress’ Joint Economic Committee.
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