Some Hedge Funds On The Verge Of Blowing Up
I read some time ago that quite a few MBA students aspired to work for hedge funds when they graduated. Sounds good. I just hope they also have a “Plan B” figured out. According to Suzy Jagger of The Times (UK) this morning:
Several hedge funds with assets of more than $4 billion (£2 billion) were on the brink of collapse last night or had halted withdrawals, despite moves by the US Federal Reserve this week to ease America’s deteriorating credit crisis with a $200 billion collateral lending facility.
The potential closure of six funds came as a leading private equity executive, who declined to be named, said that such funds were “snapping like twigs”, with one failing every day.
Just last week, the “Oracle of Omaha,” Warren Buffett, appeared on CNBC and warned of the volatile nature and exaggerated glamour of hedge funds:
CNBC: How do we see the end of this–of this explosion in hedge fund mania?
BUFFETT: Over time there will be a disillusionment when the–and incidentally, it won’t be disastrous or anything of the sort. There’ll be—there’ll be the occasional blowups here and there. But over time, when people find out that it’s not the holy grail, you know, the money will flow elsewhere. You know, people will–people always go through the rearview mirror, what’s been popular and has worked recently, and this will be like all the rest.
The Times went on to identify the troubled hedge funds, which include:
• Drake Management- Warned investors yesterday in its $3 billion Global Opportunities Fund that it was considering closing the fund. The fund has already blocked investors from withdrawing their cash. According to Jagger, “Drake is also understood to be considering whether to close two other hedge funds, the Drake Low Volatility fund and the Drake Absolute Return.”
• GO Capital Asset Management- Preventing investors from withdrawing capital from its $881 million Global Opportunities hedge fund.
• Two New Zealand investment trusts- According to Dutch bank ING, it has frozen the two trusts, which were highly-exposed to mortgage-backed bonds.
Sources:
“Hedge funds on the brink as US Federal Reserve cash fails to ease crisis”
Suzy Jagger
The Times (UK), March 13, 2008
“Warren Buffett Answers Your Emails on Squawk Box: Transcript (Parts 1-11)”
CNBC, March 3, 2008
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