Thousands Of Hedge Funds May Collapse

[Mrs. Sharon B. Hodge]

October 23, 2008 - According to Nouriel Roubini of NYU, "Hundreds" of Hedge Funds May Fail; GLG President Cals on Darwinian Scenario, Predicts Many Hedge Funds Around the World Will Disappear


Roubini:..Panic' May Force Market Shutdown P1

Oct. 23, 2008 - Roubini Says .. Panic' May Force Market Shutdown- H...

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Thousands of hedge funds to close, says GLG chief Emmanuel Roman
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Thousands of hedge funds are on the brink of failure as the global economy contracts with unexpected severity, according to the chief executive of GLG, Europe's biggest hedge fund

Telegraph UK
By Rowena Mason
23 Oct 2008

http://www. telegraph. co. uk/finance/3247878/Thousands-of-hedge-fu...

Emmanuel Roman, of GLG Partners, said 25pc-30pc of the world's 8,000 hedge funds would disappear "in a Darwinian process", either going bust or deciding meagre profits are not worth their efforts

"This will go down in the history books as one of the greatest fiascos of banking in 100 years," said Mr Roman, who co-runs London and New York-based GLG, a former division of Lehman Brothers Holdings with assets of $24bn (£14.8bn). "There need to be some scapegoats, and the regulators are going to go hunt people.
That will be good in the long run"

His views were echoed by Professor Nouriel Roubini, a former US Treasury and presidential adviser known for his accurate prediction of financial crises, who estimated that up to 500 hedge funds would fail within months

Both men were speaking at the same hedge fund conference in London on Thursday, and Prof Roubini said he would not be surprised if the US and other countries soon had to close their stock markets for more than a week to halt descent into "sheer panic"

The economist warned that the world is heading for a protracted recession that will end the US's financial dominance

"It's the beginning of the decline of the US financial empire. The Great Depression ended in a massive war.
I hope that's not going to happen but it's pretty ugly now," Prof Roubini said

He added that turmoil over world trade, currency markets and debt is likely to cause geopolitical tensions between the Western world and emerging superpowers such as Russia, China and "a bunch of unstable oil states"

The conference saw analysts, economists and hedge fund managers discussing the possibility that global recession could now last two years on fears that government bail-outs and nationalisations have failed to stop the markets slumping

"We're now paying the price for the biggest asset and credit bubble in history," Prof Roubini said, advising investors to stay clear of risky assets and keep their money in cash.
"The bail-outs have not worked because the markets are no longer rallying, and the policy-makers have run out of options"

The global financial meltdown accelerated this month, with the UK and US governments being forced to take stakes in some of the world's biggest banks.
Stock markets around the world have fallen sharply this month as investors' concern switches to the impact on the wider economy

"It's like we're walking blind in a minefield," said Prof Roubini. " Every situation has become risky and no one can trust each other.
The banks are too big to be allowed to fail, but they're also too big to be saved"

He said that the problems were not just caused by the US sub-prime market, but all kinds of risky lending the world over – from mortgages and cars to student and commercial loans

Research from Hedge Fund Intelligence (HFI) shows that despite one of the worst months on record for credit funds, US hedge funds alone still have $1.
7 trillion (£1 trillion) in assets

"Hedge funds usually thrive in such turbulence, but this time [have] had to manoeuvre in chaotic markets with a lack of leverage, jittery investors and an inability to short the best stocks," HFI's analysts said.
"But in aggregate, hedge funds are still managing to stay afloat"



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Hedge funds stop cash withdrawals
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Investors fume as they are barred from pulling their money out of struggling firms

Sunday Times UK
October 26, 2008

Iain Dey and Kate Walsh
ONE of Britain’s best-known hedge funds, RAB Capital, has stopped investors cashing out of a second of its flagship funds.
Investors in RAB’s Energy fund - which has lost more than 50% of its value this year - have been told they will not be able to liquidate their holdings

Those who want to quit will be handed “redemption shares” instead of cash - a promise on behalf of the fund to pay back investors as and when it can sell out of enough stocks

The fund, run by Gavin Wilson and Mark Redway, is entitled to do this under existing agreements with investors

Those who opt to stay in are being offered the chance to lock up their money for three years in exchange for a reduced management fee.
The proposal is based on the deal offered to investors in RAB’s Special Situations fund, run by former chief executive Philip Richards

Related Links
Panic over hedge funds 'could close markets'
Bankers take billhook to hedge funds
Investors have until Friday to tell the firm whether they want to accept the Energy fund’s lockup deal or sign up for the special shares

The fund, which was worth more than £1 billion at its peak, has been one of the biggest backers of oil and gas-exploration firms on London’s Alternative Investment Market

It is understood that the fund has held informal discussions with a number of large oil companies interested in buying some of its holdings.
The fund mostly holds large stakes in small companies - investments that have become almost impossible to trade in today’s volatile environment

RAB Capital said: “The fund managers have exercised their right to make redemptions in specie in light of the difficult market conditions”

Its latest problems come amid mounting expectations that the hedge-fund community will be decimated by the global market meltdown.
Banks have been calling in credit lines extended to a number of funds, which has forced them to sell shares to raise cash

Former US Treasury adviser Nouriel Roubini warned last week that up to 500 hedge funds would collapse within months

Kenneth Griffin, the founder of hedge fund Citadel with $17 billion (£6.
6 billion) in assets, held a 45-minute emergency conference call on Friday to quell fears it was in trouble by going public with information it usually guards militantly

The call was intended for a small group of bondholders but almost 1,000 investors, analysts and other market players dialled in after a Wall Street blog said Citadel was meeting Federal Reserve officials to manage a pending collapse

On the call, Griffin and chief operating officer Gerald Beeson confirmed the firm had suffered losses of 35% in its two core funds - Kensington and Wellington - as a result of the global financial crisis

Beeson stressed the severity of the financial crisis: “To call it a dislocation doesn’t go anywhere near what we’ve seen.
We’ve seen the near-collapse of the world’s banking system”

They said Citadel had not had to sell assets to meet investor demands to return their capital and that the firm had more than 30% of its assets in cash - or close to $6 billion.
It has another $8 billion in credit available from commercial banks around the world

Poor performance has also spurred London-based Centaurus Capital into action.
It is proposing to return 30% of cash to investors in its Alpha fund and lock up the rest of the money for two years with reduced fees

If approved by investors, the plan would take effect on December 1.
As an interim measure, Centaurus is restricting the amount of money investors can withdraw to just 10%

And GLG may decide to suspend redemptions on its $1.
4 billion market-neutral fund this Friday – the last day of the month and typically when redemption notices come in




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So long, suckers Millionaire hedge fund boss thanks 'idiot' traders and retires at 37
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Guardian UK
Andrew Clark in New York
Saturday October 18 2008

http://www. guardian. co. uk/business/2008/oct/18/banking-useconomy

The boss of a successful US hedge fund has quit the industry with an extraordinary farewell letter dismissing his rivals as over-privileged "idiots" and thanking "stupid" traders for making him rich

Andrew Lahde's $80m Los Angeles-based firm Lahde Capital Management in Los Angeles made a huge return last year by betting against subprime mortgages

Yesterday the 37-year-old told his clients that he had hated the business and had only been in it for the money.
And after declaring he would no longer manage money for other people, because he had enough of his own, Lahde said that instead he intended to repair his stress-damaged health; he made it clear he would not miss the financial world

"The low-hanging fruit, ie idiots whose parents paid for prep school, Yale and then the Harvard MBA, was there for the taking," he wrote.
"These people who were (often) truly not worthy of the education they received (or supposedly received) rose to the top of companies such as AIG, Bear Stearns and Lehman Brothers and all levels of our government," he said

"All of this behaviour supporting the aristocracy only ended up making it easier for me to find people stupid enough to take the other side of my trades.
God bless America"

Lahde became one of the biggest names in the investment industry when one of his funds produced a return of 866% last year, largely by forecasting the US home loans industry would collapse

In his farewell letter, which concluded with an appeal for the legalisation of marijuana, Lahde said he was happy with his rewards and did not envy those who had made even more money

"I will let others try to amass nine, 10 or 11 figure net worths.
Meanwhile, their lives suck," he wrote, citing a life of back-to-back business appointments relieved only by a two-week annual holiday in which financiers are still "glued to their Blackberries"

Lahde's retirement came amid an implosion among the hedge fund industry - some 350 of the funds have liquidated this year, according to Hedge Fund Research

His final words of advice? "Throw the Blackberry away and enjoy life"


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Hedge Fund Manager: Goodbye and F---- You
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LAHDE CAPITAL MANAGEMENT
October 17, 2008

PFD original here
http://images. nymag. com/images/2/daily/2008/10/20081017_lahde. pdf

Today I write not to gloat. Given the pain that nearly everyone is experiencing, that would be entirely inappropriate. Nor am I writing to make further predictions, as most of my forecasts in previous letters have unfolded or are in the process of unfolding.
Instead, I am writing to say goodbye

Recently, on the front page of Section C of the Wall Street Journal, a hedge fund manager who was also closing up shop (a $300 million fund), was quoted as saying, "What I have learned about the hedge fund business is that I hate it." I could not agree more with that statement. I was in this game for the money. The low hanging fruit, i.e. idiots whose parents paid for prep school, Yale, and then the Harvard MBA, was there for the taking. These people who were (often) truly not worthy of the education they received (or supposedly received) rose to the top of companies such as AIG, Bear Stearns and Lehman Brothers and all levels of our government. All of this behavior supporting the Aristocracy, only ended up making it easier for me to find people stupid enough to take the other side of my trades.
God bless America

There are far too many people for me to sincerely thank for my success. However, I do not want to sound like a Hollywood actor accepting an award. The money was reward enough.
Furthermore, the endless list those deserving thanks know who they are

I will no longer manage money for other people or institutions. I have enough of my own wealth to manage. Some people, who think they have arrived at a reasonable estimate of my net worth, might be surprised that I would call it quits with such a small war chest. That is fine; I am content with my rewards. Moreover, I will let others try to amass nine, ten or eleven figure net worths. Meanwhile, their lives suck. Appointments back to back, booked solid for the next three months, they look forward to their two week vacation in January during which they will likely be glued to their Blackberries or other such devices. What is the point? They will all be forgotten in fifty years anyway. Steve Balmer, Steven Cohen, and Larry Ellison will all be forgotten. I do not understand the legacy thing. Nearly everyone will be forgotten. Give up on leaving your mark.
Throw the Blackberry away and enjoy life

So this is it. With all due respect, I am dropping out. Please do not expect any type of reply to emails or voicemails within normal time frames or at all. Andy Springer and his company will be handling the dissolution of the fund. And don't worry about my employees, they were always employed by Mr.
Springer's company and only one (who has been well-rewarded) will lose his job

I have no interest in any deals in which anyone would like me to participate. I truly do not have a strong opinion about any market right now, other than to say that things will continue to get worse for some time, probably years. I am content sitting on the sidelines and waiting. After all, sitting and waiting is how we made money from the subprime debacle. I now have time to repair my health, which was destroyed by the stress I layered onto myself over the past two years, as well as my entire life – where I had to compete for spaces in universities and graduate schools, jobs and assets under management – with those who had all the advantages (rich parents) that I did not.
May meritocracy be part of a new form of government, which needs to be established

On the issue of the U.S. Government, I would like to make a modest proposal. First, I point out the obvious flaws, whereby legislation was repeatedly brought forth to Congress over the past eight years, which would have reigned in the predatory lending practices of now mostly defunct institutions. These institutions regularly filled the coffers of both parties in return for voting down all of this legislation designed to protect the common citizen. This is an outrage, yet no one seems to know or care about it. Since Thomas Jefferson and Adam Smith passed, I would argue that there has been a dearth of worthy philosophers in this country, at least ones focused on improving government. Capitalism worked for two hundred years, but times change, and systems become corrupt. George Soros, a man of staggering wealth, has stated that he would like to be remembered as a philosopher. My suggestion is that this great man start and sponsor a forum for great minds to come together to create a new system of government that truly represents the common man's interest, while at the same time creating rewards great enough to attract the best and brightest minds to serve in government roles without having to rely on corruption to further their interests or lifestyles. This forum could be similar to the one used to create the operating system, Linux, which competes with Microsoft's near monopoly.
I believe there is an answer, but for now the system is clearly broken

Lastly, while I still have an audience, I would like to bring attention to an alternative food and energy source. You won't see it included in BP's, "Feel good. We are working on sustainable solutions," television commercials, nor is it mentioned in ADM's similar commercials. But hemp has been used for at least 5,000 years for cloth and food, as well as just about everything that is produced from petroleum products. Hemp is not marijuana and vice versa. Hemp is the male plant and it grows like a weed, hence the slang term. The original American flag was made of hemp fiber and our Constitution was printed on paper made of hemp. It was used as recently as World War II by the U.S. Government, and then promptly made illegal after the war was won. At a time when rhetoric is flying about becoming more self-sufficient in terms of energy, why is it illegal to grow this plant in this country? Ah, the female. The evil female plant – marijuana. It gets you high, it makes you laugh, it does not produce a hangover. Unlike alcohol, it does not result in bar fights or wife beating. So, why is this innocuous plant illegal? Is it a gateway drug? No, that would be alcohol, which is so heavily advertised in this country. My only conclusion as to why it is illegal, is that Corporate America, which owns Congress, would rather sell you Paxil, Zoloft, Xanax and other additive drugs, than allow you to grow a plant in your home without some of the profits going into their coffers. This policy is ludicrous. It has surely contributed to our dependency on foreign energy sources. Our policies have other countries literally laughing at our stupidity, most notably Canada, as well as several European nations (both Eastern and Western). You would not know this by paying attention to U.S. media sources though, as they tend not to elaborate on who is laughing at the United States this week.
Please people, let's stop the rhetoric and start thinking about how we can truly become self-sufficient

With that I say good-bye and good luck

All the best,

Andrew Lahde