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DSTARS was quite right telling us about the walking dead Hedge Funds, maybe you don't have to be Nostradamus to see what is coming.

http://news.independent.co.uk/business/new...icle2853838.ece

Crisis spreads from US lenders to UK hedge funds

By Stephen Foley and Danny Fortson

Published: 11 August 2007

So hedge funds everywhere have been dumping other assets to raise cash, leading to a maelstrom of liquidations that have sent some of the most predictable trading strategies to produce horrific results. Computer trading programs at so-called "quant" funds (it is short for quantative) that were previously the most sought-after investments in the hedge fund industry have produced big losses this week.

http://www.bloomberg.com/apps/news?pid=206...&refer=home

Goldman's Global Alpha Falls 26% in 2007, People Say (Update3)

Goldman's Global Alpha losses may lead to more redemptions. Withdrawals for the fund's $6.2 billion offshore version totaled $394 million in the month ended June 30, according to an investor who declined to be identified. That was almost three times the $142 million in new money added.

Global Alpha decreased 8 percent during the last full week of July and was down 16 percent from the beginning of January through Aug. 3. There is an Aug. 15 deadline for Global Alpha investors who want to redeem money on Sept. 30.

http://www.bloomberg.com/apps/news?pid=206...&refer=home

Renaissance Technologies Hedge Fund Declines 8.7% in August

By Katherine Burton

Aug. 10 (Bloomberg) -- James Simons's $29 billion Renaissance Institutional Equities Fund, which uses computer models to pick stocks, has fallen 8.7 percent so far in August.

The hedge fund, started two years ago, has declined 7.4 percent for the year.

``We have been caught in what appears to be a large wave of de-leveraging on the part of quantitative long/short hedge funds,'' Simons wrote in a note to investors yesterday.

Simons has one of the best records in the hedge-fund industry. His Medallion fund, which manages money only for Simons and his employees, has climbed at an average annual rate of more than 30 percent since 1988. The East Setauket, New York- based firm manages a total of $36.8 billion.

To contact the reporter on this story: Katherine Burton in New York at kburton@bloomberg.net

Last Updated: August 10, 2007 13:29 EDT

http://www.bloomberg.com/apps/news?pid=206...id=aIsg6vAT_8.k

Treasuries Gain as U.S. Subprime Crisis Spreads, ECB Adds Funds

Treasuries had the biggest drop in more than a month yesterday after the Federal Reserve said the economy will likely weather a subprime housing crisis. President George W. Bush and Treasury Secretary Henry Paulson yesterday said they're resistant to changing government policies to address gyrations in financial markets, calling the U.S. economic expansion

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DSTARS was quite right telling us about the walking dead Hedge Funds, maybe you don't have to be Nostradamus to see what is coming.

http://news.independent.co.uk/business/new...icle2853838.ece

Crisis spreads from US lenders to UK hedge funds

By Stephen Foley and Danny Fortson

Published: 11 August 2007

http://www.bloomberg.com/apps/news?pid=206...&refer=home

http://www.bloomberg.com/apps/news?pid=206...&refer=home

http://www.bloomberg.com/apps/news?pid=206...id=aIsg6vAT_8.k

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I'd be careful about predicting the death of many of these funds - not because they're not sitting on a loss right now but because many are a lot more volatile than you might expect and have certainly recovered from far greater losses than this before. I recall the Man AHL fund being down 15-20% at the half way mark a few years back but finishing the year 30% up. The long standing funds have very commited long term investors who will sit this sort of trouble out. The ones to look at are the smaller johny-come-lately types who never been through something like this and probably don't have a clue how to handle it.

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I'd be careful about predicting the death of many of these funds - not because they're not sitting on a loss right now but because many are a lot more volatile than you might expect and have certainly recovered from far greater losses than this before. I recall the Man AHL fund being down 15-20% at the half way mark a few years back but finishing the year 30% up. The long standing funds have very commited long term investors who will sit this sort of trouble out. The ones to look at are the smaller johny-come-lately types who never been through something like this and probably don't have a clue how to handle it.

Even experienced investors pull out, some times because they want too but because they have too.

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I'd be careful about predicting the death of many of these funds - not because they're not sitting on a loss right now but because many are a lot more volatile than you might expect and have certainly recovered from far greater losses than this before. I recall the Man AHL fund being down 15-20% at the half way mark a few years back but finishing the year 30% up. The long standing funds have very commited long term investors who will sit this sort of trouble out. The ones to look at are the smaller johny-come-lately types who never been through something like this and probably don't have a clue how to handle it.

I agree, one must be careful not to tar all hedge funds with the same brush. Many hedge funds are not exposed to the sub-prime mess and some are even short it leading to some legendary gains this year. I would also agree that the average hedge fund clients are not your average punters; they are qualified investors who have more of a stomach and resources to weather short term market volatility. Also, hedge funds have historically been seen as an alternative investment class (to mainstream equities) and therefore their fate may not be as correlated to the broad markets as many people think. Sinking markets are just the type of environment that some hedge funds thrive in. Remember, hedge funds can do things which large institutional, regulated on-shore funds cannot. For one thing, they can short securities with abandon and can employ derivatives strategies which are perfectly sound from a risk perspective. Many say that hedge funds help to make the general markets more efficient and if they did not exist, then irrational exuberance would have no checks and the markets would have experienced even worse excesses than they do now. Oftentimes, hedge funds are buyers when there are no more buyers and sellers when there are no more sellers, hence keeping the markets liquid

Best,

L

Edit : typo

Edited by Luminist

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i think it may be time to regulate hedge funds the way mutual funds are regulated.

I agree, this is long overdue. Indeed much tougher City regulation all round is required. Or indeed to at least start regulating the financial institutions!

Politicians have had a hands off approach, but look what happens. A massive feedback loop, where a real estate bubble begets a financial bubble, which in turn feeds back into the housing bubble and so on.

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I agree, one must be careful not to tar all hedge funds with the same brush. Many hedge funds are not exposed to the sub-prime mess and some are even short it leading to some legendary gains this year. I would also agree that the average hedge fund clients are not your average punters; they are qualified investors who have more of a stomach and resources to weather short term market volatility. Also, hedge funds have historically been seen as an alternative investment class (to mainstream equities) and therefore their fate may not be as correlated to the broad markets as many people think. Sinking markets are just the type of environment that some hedge funds thrive in. Remember, hedge funds can do things which large institutional, regulated on-shore funds cannot. For one thing, they can short securities with abandon and can employ derivatives strategies which are perfectly sound from a risk perspective. Many say that hedge funds help to make the general markets more efficient and if they did not exist, then irrational exuberance would have no checks and the markets would have experienced even worse excesses than they do now. Oftentimes, hedge funds are buyers when there are no more buyers and sellers when there are no more sellers, hence keeping the markets liquid

Best,

L

Edit : typo

unregulated banks, and stealing business from banks is what they are, they are much worse than banks. Thats why they have added to this mess because they stole business from banks.

But then again banks thought they were clever, i bet this has a lot to do with the way business has be stolen from the banks combined with ABS(MBS)

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Even experienced investors pull out, some times because they want too but because they have too.

Not when they have 5 year (e.g. Citadel investments) or 3 year (e.g. D.E.Shaw) lock-ins they don't! They might want to, but they can't.

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http://www.dealbreaker.com/2007/08/collate...ehedge_fund.php

Collateral Damage

Hedge Funds Facing Death By Margin Call?

Several banks that have provided a large amount of leverage to their hedge funds clients are re-evaluating the value of their collateral, according to sources familiar with the situation. If the banks determine that the assets collateralizing the loans they have made to hedge funds are not as valuable as previously thought, they may reduce the leverage available for hedge fund clients to make investments and force hedge funds to sell assets to provide additional collateral.

The second look at hedge fund collateral has been prompted, in part, by recent events at Bear Stears and this morning’s announcement by BNP Paribas that it could not calculate the value of assets in three hedge funds. This comes amidst spreading fears that collateralized debt obligations held by many hedge funds may be worth far less than their internal models have indicated. Because many CDOs trade thinly, if at all, it can be impossible to determine their market values. Hedge funds and banks have relied instead on financial modeling to value the CDOs.

Hedge funds that have relied on CDOs to collateralize their margin borrowing could face a credit squeeze if lenders downgrade the value they attach to CDOs. With BNP Paribas calling a valuation of the value of their debt holdings impossible, some on Wall Street are arguing that many CDOs should be considered as having zero value for collateral purposes. If banks adopt this position, some hedge funds would face steep margin calls, forcing them to sell these assets. This in turn could result in a deluge of debt products in a thinly traded market, pushing their values even lower.

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On the plus side with all these fire sales going on someone must be picking up some serious bargains.

A bit like house price volatility, whether up or down, one man's loss is another's profit.

All we need now is for China to offload its 900 billion dollars in order to snap up all the distress-sale assets from the hedge funds and banks around the world, all desperate for liquidity, and theyd've won a modern day "war".

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I'd be careful about predicting the death of many of these funds - not because they're not sitting on a loss right now but because many are a lot more volatile than you might expect and have certainly recovered from far greater losses than this before. I recall the Man AHL fund being down 15-20% at the half way mark a few years back but finishing the year 30% up. The long standing funds have very commited long term investors who will sit this sort of trouble out. The ones to look at are the smaller johny-come-lately types who never been through something like this and probably don't have a clue how to handle it.

Yes but in the past the general bull market in stocks and commodities plus lashings of cheap credit to tie them over rough patches always bailed them out. The last true secular bear market ended at the beginning of the 1980s so not even the oldest of these funds has ever operated in one. If we are facing a general debt solvency crisis leading to an genuine economic slump rather than just temporary liquidity problems then no amount of hedging is going to save them. The fact is that there are lots of institutions out in the market that are holding credit notes and options which whether pitched short or long may never be paid. It is is this threat of systemic default which has got everyone so scared.

Edited by up2nogood

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This is exactly what happened in 1998 and may account for some of the selling/closing of short positions on Thursday in Asia.

http://www.marketwatch.com/news/story/liqu...2688F60061DA%7D

http://www.nasdaq.com/aspxcontent/NewsStor...000934.htm&

Big liquidation triggers hedge-fund turmoil Some compare upheaval to LTCM collapse; market-neutral funds are hit hard

http://www.finalternatives.com/node/2287

Hedge Fund Fiasco Growing In Breadth, Depth

August 10, 2007

It’s not 1929, exactly, but hedge fund managers might be forgiven for the hyperbole.

The carnage and catastrophe wrought by the collapse of the sub-prime market continue to hit hedge funds particularly hard. And hedge fund misery is now spreading to previously immune sectors of the market.

Quantitative funds, in particular, are having a rough go of it. Previously untouchable names, including Goldman Sachs’ Global Alpha and Renaissance Technologies are taking big hits, with the former down about 16% this year, and the latter dropping 7% in just the first few days of August. Highbridge Capital Management’s $15 billion multistrategy fund is down 4% this month already, and some of Tykhe Capital’s share classes are down between 17% and 31% through Aug. 9.

Goldman’s troubles, however, are no longer limited to the erstwhile Cadillac of Hedge Funds. Its North American Opportunities Fund, an equity market-neutral vehicle, was down 15% through July 27, before the market bloodbath of the last several days. The once $767 million was down 11% in July. And the troubles in its hedge funds are no longer Goldman’s alone.

Edited by alabala

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Yes but in the past the general bull market in stocks and commodities plus lashings of cheap credit to tie them over rough patches always bailed them out. The last true secular bear market ended at the beginning of the 1980s so not even the oldest of these funds has ever operated in one. If we are facing a general debt solvency crisis leading to an genuine economic slump rather than just temporary liquidity problems then no amount of hedging is going to save them. The fact is that there are lots of institutions out in the market that are holding credit notes and options which whether pitched short or long may never be paid. It is is this threat of systemic default which has got everyone so scared.

I agree with that analysis but I don't think we're there yet with the general economic meltdown needed to make it happen - I'm not saying it can't happen just that what we're seeing right now is more fear of the dark than actual monsters with dripping fangs bearing down on us. I think the biggest immediate threat to hedge funds is prime brokers cutting back on the amount of leverage they'll provide. Renaissance Technology started in 1982 btw, so there are one or two funds out there who've been through it. Agreed that most haven't though.

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I agree with that analysis but I don't think we're there yet with the general economic meltdown needed to make it happen - I'm not saying it can't happen just that what we're seeing right now is more fear of the dark than actual monsters with dripping fangs bearing down on us. I think the biggest immediate threat to hedge funds is prime brokers cutting back on the amount of leverage they'll provide. Renaissance Technology started in 1982 btw, so there are one or two funds out there who've been through it. Agreed that most haven't though.

If its just a liquidity crunch then the Central Banks will be able to tie over the market. The worry is that we are seeing a more general solvency crisis

http://www.rgemonitor.com/blog/roubini/209779

I usually rather enjoy the odd blow up in the financial markets but I have to confess that this time I am a little scared

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The stupid/corrupt/fraudulent hedge funds that invested in MBS are toast.

The smart hedge funds that bet against the stupid hedge funds will do very well. This is a newsletter from Kyle Bass, who runs Hayman Capital from Dallas. He's one of the smart ones; up 240% this year!

edit: extract from his newsletter:

I recently spent some time with a senior executive in the structured product marketing

group (Collateralized Debt Obligations, Collateralized Loan Obligations, Etc.) of one of

the largest brokerage firms in the world. I was in Roses, Spain attending a wedding for a

good friend of mine who thought it would be an appropriate time to put the two of us

together (given our shared interests in the structured credit markets). This individual

proceeded to tell me how and why the Subprime Mezzanine CDO business existed.

Subprime Mezzanine CDOs are 10-20X levered vehicles that contain only the BBB and

BBB- tranches of Subprime debt. He told me that the “real money” (US insurance

companies, pension funds, etc) accounts had stopped purchasing mezzanine tranches of

US Subprime debt in late 2003 and that they needed a mechanism that could enable them

to “mark up” these loans, package them opaquely, and EXPORT THE NEWLY

PACKAGED RISK TO UNWITTING BUYERS IN ASIA AND CENTRAL

EUROPE!!!! He told me with a straight face that these CDOs were the only way to get

rid of the riskiest tranches of Subprime debt. Interestingly enough, these buyers

(mainland Chinese Banks, the Chinese Government, Taiwanese banks, Korean banks,

German banks, French banks, UK banks) possess the “excess” pools of liquidity around

the globe. These pools are basically derived from two sources: 1) massive trade surpluses

with the US in USD, 2) petrodollar recyclers. These two pools of excess capital are US

dollar denominated and have had a virtually insatiable demand for US dollar

denominated debt...until now.

Edited by LargelyIgnorant

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He told me that the “real money” (US insurance companies, pension funds, etc)

accounts had stopped purchasing mezzanine tranches of US Subprime debt in late 2003 ...

...Interestingly enough, these buyers (mainland Chinese Banks, the Chinese Government,

Taiwanese banks, Korean banks, German banks, French banks, UK banks) possess the

“excess” pools of liquidity around the globe.

LargelyI, I've read a lot of scary things this last week but - for some reason - that strikes me as the scariest of the lot.

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http://www.euromoneybooks.com/product.asp?...;ProductID=7415

InvestHedge Forum 2007

Venue: The British Museum

Location: London

Dates: 18/09/2007 - 19/09/2007

A high-powered session on hedge fund activism will be one of the many highlights at the forthcoming InvestHedge Forum, to be held in association with EuroHedge in September

Last year's Forum attracted more than 500 top-level delegates and we are expecting that number at least again. Demand for places is expected to be high and delegates are encouraged to confirm their participation early.

Key topics:

• How hedge funds fit into the asset management landscape of the future

• What do investors want - and are they getting it?

• Are funds of funds living on borrowed time?

• Opportunities for UK institutions

• How consultants are adapting to the hedge fund appetite

• Are niche funds of funds the answer to buoyant returns?

• Hedge fund activists - friend or foe?

• What is the smart family office looking for?

• Routes investors can take to enter the market

Stream sessions on subjects including:

• Portable alpha

• Credit strategies

• Due diligence pitfalls

• 130/30 - fad or future?

• Should retail investors be allowed to buy hedge funds?

• Structured products - crucial tool or an expensive con?

• Risk management - what's new?

• The outlook for hedge fund and fund of fund listings

• Investing in commodities

Real Oportunity to find out who is the real winner of all!

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LargelyI, I've read a lot of scary things this last week but - for some reason - that strikes me as the scariest of the lot.

....the trick is to interview the Wall Steet Fund Managers who wrapped and packed the 'shortbread' and find out exactly who was behind them.... who are these guys...?...have they run off with the takings ....?....hiding in some exotic location .....?..or are they still trading on Wall Street....?......lets get them on 'Parky' and get the lowdown.... :lol::lol::lol: ...they could follow up with an appearance with Kirsty on Desert Island Discs.... :unsure:

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The Hedge funds are not walking dead, that's not the way to put it. Some are like blood thirsty sharks and run by people like George Soros, while other hedge funds, mutual funds, and stock holders are food. Those who understand the market usually survive.

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The Hedge funds are not walking dead, that's not the way to put it. Some are like blood thirsty sharks and run by people like George Soros, while other hedge funds, mutual funds, and stock holders are food. Those who understand the market usually survive.

....where there has been a sting like this.....and some people were aware it was going on "“real money” (US insurance

companies, pension funds, etc) accounts had stopped purchasing mezzanine tranches of

US Subprime debt in late 2003 " it would be interesting to find out who knew about the 'wrapping'..... <_<<_<<_<

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....where there has been a sting like this.....and some people were aware it was going on "“real money” (US insurance

companies, pension funds, etc) accounts had stopped purchasing mezzanine tranches of

US Subprime debt in late 2003 " it would be interesting to find out who knew about the 'wrapping'..... <_<<_<<_<

Usually when pension funds buys something it's time to sell. Just before housing peaked out, people with no investment knowledge kept giving me real estate advice. Other indicators are when people who do not take the time to study things, buy something, sure at what they do, with no strategy to handle losses. Unless they spend the time, they are just lazy, and it's bound to go wrong because a free lunch don't exist. What happens is these people buy at or near the top. It takes a good deal of self knowledge to cash out after prices have started to dip. Just as it takes a great strength to walk after a couple of losses at the casino table, even if you had not won anything yet. It's far easier to keep playing if you still have winnings left, but the smart ones walk because they do not fixated on the amount of money they started with. Instead they are using a stop loss strategy. I think gamblers have no place in this game. It's a bit like playing poker. The hard ones to beat are those who are good at reading the psychology of the game. The book smart stand no chance.

Edited by carseller

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On the plus side with all these fire sales going on someone must be picking up some serious bargains.

A bit like house price volatility, whether up or down, one man's loss is another's profit.

True. Always follow the money. And, yes, many derivative deals between funds wll indeed be neutral for the financial sector as a whole. The two overall problem areas are:

The original mortgage instruments. Where the money has ultimately gone to buy flat screen TV's for those with no means to pay back. i.e the other side of the transaction is already in the general economy ( and then gone to pay employees who have bought yet more TVs probably......)

and

Counterparty issues. So the small hedge fund with the big losses goes belly up and the large hedge fund with the big book profit gets $zero when it expected to get $ 5billlion.

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These two pools of excess capital are US

dollar denominated and have had a virtually insatiable demand for US dollar

denominated debt...until now.

Will the rest of the world get their own back on the US and stop recycling anything their way? If the Chinese have lost a lot surely that's just another reason to ditch the $ to teach them a lesson...one they'll not forget in a hurry

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